Moody’s sceptical on Mboweni’s pay cuts
• Cosatu prepares for a confrontation with president’s administration over cuts in public sector bill
Moody’s Investors Service, the only agency with an investment-grade rating on SA’s debt, voiced its scepticism on Thursday about proposed cuts in the public sector wage bill.
This as Cosatu prepares for a confrontation with President Cyril Ramaphosa’s administration over finance minister Tito Mboweni’s plans.
Moody’s, which is due to review its rating in March, joined peer Fitch Ratings in casting doubt whether R160bn in pay cuts from about 1.3-million public servants is achievable. It came within hours of Cosatu accusing the government of making workers the scapegoat for its failures, saying it will not allow wages to be cut.
“The authorities have yet to negotiate any moderation in wages with the country’s unions, which will likely be challenging,” said Moody’s vicepresident Lucie Villa, in a report responding to Wednesday’s budget that outlined R261bn in savings, the bulk of which would come from slashing public servants’ wage bill.
Cosatu’s first deputy president, Mike Shingange, said government officials “will end [up] with egg on their face” if it pushes through the proposal because the public sector wage bill is not the problem.
“We are going to prove to them that they have misdiagnosed the problem,” he said.
Cosatu’s stance will test Ramaphosa’s determination to rein in public spending, which has pushed the budget deficit to its highest level since the 1992/ 1993 fiscal year, jacked up state borrowings and left SA’s remaining investment-grade credit rating by Moody’s hanging by a thread.
The R160bn cuts envisage an immediate renegotiation of the three-year wage agreement in force.
Shingange said this was a “mischievous proposal”, which was curiously tabled 20 days before the final phase of the multiyear wage agreement is supposed to come into effect.
“It undermines the principle of collective bargaining ... This was never done, even during apartheid — that a signed agree
ment is reneged upon. We can’t expect that from a democratic government,” he said.
The final phase of the multiyear wage agreement signed in 2018 is due to be implemented on April 1, while the next round of public-sector wage negotiations is set for the second half of 2020.
The government has been battling to contain its wage bill and allocates about R600bn to salaries, representing 35% of its annual spending. A salary freeze has been put in place for all public representatives, including cabinet ministers and MPs.
The spending cut proposals bolstered the rand and bonds on Wednesday as investors bet the move would help SA avert a downgrade of its last remaining investment-grade credit rating.
A downgrade by Moody’s could trigger an outflow of money from the country’s bond market as SA falls out of benchmark indices, weakening the rand and pushing up borrowing costs.
Even if the government achieves its “planned spending restraint”, said Villa, the projected primary deficit — or the difference between revenue and noninterest expenditure — of 1.1% of GDP by 2022 would still be too wide to stabilise its debt, given weak growth prospects and likely increases in the state’s interest bill.
Mboweni’s planned cuts may end up making no difference, as the government’s debt trajectory may not stabilise in the coming years and could reach 71.6% of GDP by 2022/23.
On the eve of the budget speech, Cosatu, which backed Ramaphosa’s campaign to lead the ANC in 2017, said any attempt to freeze salary adjustments for 2020 and 2021 would count as a “declaration of war”.
The Cosatu leaders implied the government is acting in bad faith on the matter.
“You can’t take a decision and say ‘let’s come and negotiate’.
“You discuss the proposal first and then announce on the outcomes. You don’t announce and prejudge what will happen during negotiations,” Cosatu general secretary Bheki Ntshalintshali said.