February 26, 2020 / 6:45 PM / a month ago

S.Africa's Treasury head warns of debt trap if wage cuts do not materialise

CAPE TOWN, Feb 26 (Reuters) - South Africa risks sliding into a debt trap and being forced to approach the International Monetary Fund (IMF) for bailouts if it fails to push through more than 160 billion rand ($10.50 billion) worth of cuts to public sector wages, the head of the National Treasury said on Wednesday.

“If we don’t deal with the wage bill we’ll fall into a debt-trap situation and have to start knocking on the door of the IMF. We’ll be unable to service our debt. And where the IMF is involved the macroeconomic controls are completely taken over,” the treasury’s Director-General Dondo Mogajane told Reuters.

Many big public sector unions have reacted angrily to proposed wage cuts, raising the risk of a massive strike that could cripple services in schools and hospitals.

Mogajane said ratings agencies S&P Global and Fitch had questioned him about the level of political support for the deep cuts proposed by Finance Minister Tito Mboweni in his budget speech earlier on Wednesday.

“The unions did not agree. We did not ask them to agree. We said to them our country is in trouble. But government, cabinet and the president are behind this. And in the past we’ve never had this kind of support.”

Mogajane said Moody’s, the last of the top three agencies to rate the country investment grade, would be in the country next week for consultations ahead of a credit review in late March. ($1 = 15.2377 rand) (Reporting by Mfuneko Toyana and Wendell Roelf; Editing by Kirsten Donovan)

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