AS UNIONS canvassed their members on whether to accept the government’s latest wage offer to end a crippling public service strike, analysts warned the terms of the settlement would put the budget deficit under pressure and may even prompt rating agencies to take a closer look at South Africa’s credit ratings.

Public Service and Administration Minister Richard Baloyi said the government had no choice but to go out and borrow money. Baloyi said an extra R7- billion had to be raised, above the current R297bn public service wage bill.

Government raised its pay offer to public servants from 7 to 7,5 percent, with a housing allowance of R800 a month, up from its offer of R700. The unions had been demanding 8,6 percent and a R1000 housing allowance.

After two years of surplus, the budget deficit widened to 6,7 percent of gross domestic product in 2009-10, with plans to trim it to about 4 percent by 2013, and to moderate borrowing.

“Any way you (look at it), it’s exceptionally difficult for government to give in to the high wage demands in this environment,” said Nedbank chief economist Dennis Dykes.
“It will mean they have to cut expenditure elsewhere … They can cut on fixed investment spending and then you would have a situation where the economy doesn’t grow,” he said.
At 28 percent, South Africa’s debt-to- GDP ratio pales in comparison with the much higher levels of some European countries. The government has projected it will reach 40 percent in 2013.

International ratings agencies have warned of risks to South Africa’s ratings on any hint of expanded fiscal spending.

“We already have a negative outlook on the rating and for some time we’ve been flagging some downside risks with regards to rating,” said Standard & Poor’s MD for SA and sub-Saharan Africa, Konrad Reuss. Full story