The IMF says South Africa should have more ambitious fiscal consolidation to put its debt on a firmly downward path,
Non-implementation of structural and fiscal reforms to support growth and stabilise public debt in South Africa stand in the way of real economic growth, a senior International Monetary Fund (IMF) official says.
To put its debt on a firmly downward path, SA should have more ambitious fiscal consolidation, at least 1% of GDP consolidation per year for three years.
This has to be accompanied by a fiscal rule with a debt ceiling that could help underpin the adjustment and support policy credibility.
This was part of a presentation by Tidiane Kinda, the IMF’s senior resident representative in SA during a discussion on consultation with SA organised by the Mapungubwe Institute for Strategic Reflection and the IMF in Johannesburg last week.
Public wage bill: ‘Exorbitant salary premium’
Regarding concerns about the huge public wage bill, Kinda said the number of public servants was not a problem, but the exorbitant salary premium was an issue. He said salaries in the public sector were larger than in the private sector.
Kinda also noted that the public sector wage bill had increased by 2.2% of GDP since 2007, due to hiring and compensation above inflation by the state.
To safeguard fiscal sustainability, the wage increase ought to be limited to a below-inflation amount accompanied by a reduction in allowances and pay progression.
The state should introduce an evidence-based approach to pay-setting and control public sector workforce growth, including through early retirement, as the government was already planning to do.
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Public sector unions dilemma
If the IMF suggestions were implemented, particularly with regards to wage increase limitations, that would pit the government against public sector unions, which frequently demand above-inflation raises.
Also, the public service is bloated with a huge salary bill which takes a huge chunk of the national budget.
In the 2025 budget that was postponed due to the value-added tax increase dispute among parties within the government of national unity, National Treasury was to propose to set aside R11 billion for early retirement over two financial years in an attempt to reduce the huge bill.
The payments were expected to be implemented without penalties.
Fiscal strategy
In his shelved budget speech last month, Finance Minister Enoch Godongwana, who used the same terms as the IMF in his presentation, highlighted that the government’s fiscal strategy “remained very much the same to stabilise public finances and reduce fiscal and economic risks”.
“Given that a large share of the fiscus is attributed to the public sector wage bill, this naturally places limits on compensation budgets if government is to achieve fiscal sustainability.”
Structural reforms and additional revenue measures
Kinda said in order to finance additional public investment in a budget-neutral way, including to support the green transition and other initiatives – such as transforming the social relief of distress grant into a permanent basic income grant and implementing the National Health Insurance system – structural reforms and potential additional revenue measures were required.
The measures included, among others, broadening tax bases by ending poorly targeted tax exemptions, further strengthening tax administration and raising other taxes to finance health insurance or increasing the effective carbon tax.
