IMF encourages SA govt to tackle wage bill, be tough on SOEs

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The IMF completed virtual meetings with SA authorities this week.
The IMF completed virtual meetings with SA authorities this week.
Allan Baxter
  • The IMF says the government needs to introduce reforms at SEOs, like Eskom, as the power utility's problems will weigh down public finances.
  • Another area to be addressed is the containment of the wage bill; Treasury says reducing the wage bill will help narrow the budget deficit.
  • Treasury says it is committed to structural reforms and prioritising economic recovery and fiscal consolidation.

The International Monetary Fund (IMF) says the SA government must prioritise the reduction of its wage bill and make funding to state-owned enterprises (SOEs) conditional, among other measures to reduce borrowing needs in future.

The multilateral institution on Wednesday issued a statement following virtual meetings with SA authorities between 15 January and 26 January.

It noted that the Covid-19 pandemic had negatively impacted the economy, resulting in job losses. It also hit public finances, with the budget deficit and public debt "significantly" increasing.

"The resurgence of infections and the protracted vaccination procurement and distribution processes, as elsewhere, will likely weigh on the economic recovery this year," it said.

Earlier this week, the IMF issued its revised growth outlook for South Africa. It expects the economy to have contracted by 7.5% in 2020 and forecasted growth of 2.8% in 2021.

"While phasing out Covid-19 outlays once the pandemic subsides, we encourage the government to make transfers to SOEs conditional on meeting ambitious, but realistic performance targets; rationalise compensation; dismantle ill-targeted subsidies; and improve enforcement of tax compliance," the IMF said.

These measures would contribute toward reducing sovereign borrowing needs and "preserving fiscal space", so funds can be directed toward infrastructure, health, education and social protection, the IMF said.

The IMF also highlighted that the government should focus on improving the efficiency of SOEs. This includes "hardening their budget constraints" and taking on strategic equity partnerships.

The IMF singled out power utility Eskom, emphasising that reforms were needed as its problems will continue to weigh on public finances and constrain economic growth prospects.

"Recurring power outages in the midst of a deep recession underscore the need for bold action to redefine Eskom's business model, so that it becomes self-sustaining," the IMF said.

The power utility had to implement Stage 2 loadshedding earlier this month due to unplanned power plant breakdowns impacting generating capacity.

Eskom's debt burden is approaching R500 billion - its CEO, Andre de Ruyter, has said that solving the problem would require a cocktail of interventions, Fin24 previously reported.

More generally on the SA economy, the IMF added that reforms were needed to remove constraints to growth and job creation – this includes attracting investment by promoting a competitive and business-friendly environment, among other things. 

In response, Treasury put out a statement indicating that it will continue prioritising its response to the pandemic.

"Currently, different options are being considered to fund the vaccines for Covid-19, but funding will not be a constraint in the government's focus to doing the right thing and saving lives," the statement read.

Treasury's director-general, Dondo Mogajane, earlier told journalists at a briefing with the South African National Editors' Forum that several options are on the table to fund vaccines. This includes taxes, further borrowing, reprioritisation of budgets and possibly withdrawals from the National Revenue Fund.

Treasury also assured it was committed to rolling out structural reforms as well as reducing the fiscal deficit and stabilising debt over the next five years. It affirmed its views that reducing the wage bill will assist in narrowing the budget deficit. It said it will continue to prioritise the economic recovery and fiscal consolidation.

Last year, the Labour Court dismissed an application by public sector unions to force the government to pay wage increases for the final year of a three-year wage agreement.

The court ruled that the agreement, finalised in 2018, was in invalid.

The Public Servants Association, however, is taking the matter to the Constitutional Court.

"While the decision by the Labour Court is being challenged for completeness, the Labour Court decision is encouraging in the context of a constrained fiscal framework," Treasury said.

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