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IMF once again raises the red flag on South Africa’s public wage bill and state-owned enterprises

Striking public servants march through the CBD of Cape Town. (Photo: Gallo Images / Nardus Engelbrecht)

A broken record is annoying, but the fact of the matter is that it stays broken until fixed.

The International Monetary Fund (IMF) has once again flagged South Africa’s unsustainable public wage bill and dysfunctional state-owned enterprises (SOEs) as major causes for concern. National Treasury once again said it is working on these issues.

Flagging these issues may seem like an overstatement of the obvious, but it is telling that they remain high on the IMF’s radar screen when it is talking to Pretoria. A broken record is annoying, but the fact of the matter is that it stays broken until fixed.

“Reining in large fiscal deficits and debt will require containing the wage bill and avoiding ill-targeted subsidies and transfers to inefficient SOEs,” the IMF said in a statement after the conclusion of a virtual series of meetings with South African authorities from 15-26 January.

In the face of Covid-19 and global lockdowns, the IMF has changed its tune on fiscal support for suffering economies. Over the past year it has been all for government spending – but spending that is targeted properly and transparently. So, it is revealing that it sees the public service wage bill, which pays the salaries of a small percentage of the population but consumes more than 35% of the national Budget, as a festering sore on the South African economy. Because, let’s face it, this is not money well spent. It simply feeds a massive, inefficient and often predatory patronage machine erected mostly by former president Jacob Zuma that continues apace.

“To reignite growth and job creation, there is a need to advance reforms that address Eskom and other SOEs’ difficulties, strengthen competition and governance, and increase labour market flexibility,” the IMF said.

This may also seem like old hat, but that hardly means it is unimportant. If South Africa ever has to go to the IMF for a bailout, the government will be well aware of where it needs to swing the axe.

The Treasury’s response has also been voiced before. Talk about going in circles.

“South Africa remains committed to reduce its fiscal deficit and to stabilise debt over the next five years and return the public finances to a sustainable position. We have confirmed that government’s medium-term policy priorities are economic recovery, fiscal consolidation and that reductions to the wage bill will assist in narrowing the Budget deficit,” the Treasury said in a statement.

It also noted its court battles over the freezing of public sector wages.

“In December 2020, the Labour Court dismissed the application by public sector unions seeking to force government to implement salary increases for this year as part of the 2018 wage agreement. 

“While the decision by the labour court is being challenged… the labour court decision is encouraging in the context of a constrained fiscal framework,” it said. And it reiterated its commitment to structural reforms that would include fixing things like the mess that is SOEs.

Stay tuned for the unveiling of the forthcoming Budget on 24 February by Finance Minister Tito Mboweni. With deficit and debt levels swelling to unsustainable levels, money desperately needed for a vaccine and its roll-out, and revenues down by more than R300-billion because of an economy that contracted last year between 7% and 10% or perhaps more, one would think that something has to give. DM/BM

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All Comments 8

  • No surprise here! Besides a bloated, voracious, inefficient and inept civil service, cabinet, parliament etc., they are still on full pay and benefits whilst the rest of the population suffers dearly. No pain for these cossetted parasites! We are staring at disaster of mammoth proportions and yet we have these halfwit and out of touch unions demanding increases! Great that the IMF is keeping close tabs – this largesse, stealing and living way beyond the country’s means has to stop! Money is going to run out as the taxpayer ATM is shrinking.

    • I’m afraid it seems to be the nature of the beast so to speak. I remember the times when my late wife was involved with establishing homes for street children. Eventually the ANC heard about it because it was successful and worked well they had to have a finger in the pie and from there on it went downhill chop chop. Meeting after meeting, arriving mostly late, very late, taking copious notes assigning things to be done for next meeting…………..nothing got achieved, except for money disappearing and the next meeting we went over the same things over and over again. They LOVE to be important but doing an actual job or taking responsibility, forget about it. The frustration of it all was unbelievable.

  • The civil service has devised an interesting system for cheating the salary increase limitations system.
    The standard levels of employment was changed from A, B, C etc to A1,2,3,….; B1,2,3 ….. C1,2,3… etc, so that when the restrictions are that the increase is limited to the CPI rate, not only do you get the CPI increase but your “level” is now changed from say C3 to C2 so you get that increase in salary as well.
    Never say that the civil service is not inventive.

  • ““Reining in large fiscal deficits and debt will require containing the wage bill and avoiding ill-targeted subsidies and transfers to inefficient SOEs,” the IMF said in a statement …” This is as simple as it gets. All the anc needs to do is accept and acknowledge that it has destroyed the country over the last at least 26 years. Allow someone else to start afresh.

  • “Reining in large fiscal deficits and debt will require containing the wage bill and avoiding ill-targeted subsidies and transfers to inefficient SOEs,” the IMF said in a statement after the conclusion of a virtual series of meetings with South African authorities from 15-26 January.”
    Forget the broken record , the IMF could have sent an e mail !
    Seriously , what took 12 days ?
    The Govt .will buckle under pressure from the Unions !
    They are needed come election time !
    When faced with conditions to loans from the IMF , Govt , raises its hands . WMC will get the blame .
    What can Tito do ?
    Raise taxes across the board !And cut services where possible !
    Will VAT be excluded ?

  • The government’s way of reducing the wage gap: Squeeze the upper bracket until it gets closer to the lower bracket! They were very successful in doing that with education, health services etc. Soon we will be equally poor, equally uneducated, equally unhealthy

  • Sergio you describe the SA malaise aptly. The Presidents stated priority of putting the ANC ahead of the economy as well as ahead of the needs of a largely illiterate population is akin to ZANU PF in Zimbabwe! Sadly we are on the same trajectory and we are now gaining momentum on this slippery slope. At the heart of this demise lies the present DESTRUCTION of the tourism (all the parastatals are now gone) and hospitality industries which are both largely held in white hands. Once this Covid opportunity fades and these two industries are on their knees or worse, then comes the R1,25 billion injection recently touted by Ramaphosa. Guess who will benefit from this under the guise of BBBEE?? Watch this space more money down the drain as the incapable beneficiaries buy houses and cars and these industries are then completely down the drain… along with thousands of jobs.
    Where is he finding all of this money??? Surely the lenders are tightening their conditions for loans to SA