Ratings agency Moody's is due to provide a scheduled update on SA on Friday. The agency downgraded SA to junk status a year ago and now has us on a negative outlook, but it would be pretty surprising if it did anything at a moment that is such a tipping point for SA's public finances.
Finance minister Tito Mboweni staked his February budget on a cut of more than R300bn to the public sector wage bill over the next three years. This week, the Public Service Co-ordinating Bargaining Council is expected to give the go-ahead to public sector trade unions to declare a dispute with the government after wage talks deadlocked on April 23. That would pave the way for a conciliation process which, if it fails, could result in a strike.
As always in wage negotiations, it's been a noisy process as the parties posture and position. And this particular negotiation was always going to be much noisier than most, given its history. After many years of doing sweetheart deals with public sector unions - deals that saw the pay of public sector workers increase by 40% above the inflation rate over 10 years - the government is standing firm and offering zero.
Not quite zero zero. It is offering to bundle the R9bn or so it would have paid in allowances and notch increases for the year and give it instead as a one-off "gratuity", which means it does not raise base pay for future negotiations. But it wants no more inflation-linked increases - instead, it wants to negotiate based on a new framework linking pay to performance. Against this, the unions are demanding an increase of inflation plus 4% (which would be about 8% this year) as well as an increase in the monthly housing allowance from R1,300 to R2,500, plus a "disaster" allowance of 12% of base pay for those who have to work in Covid or other disaster conditions.
Crucially, unions are willing to negotiate only for the current 2021/22 fiscal year; they refuse to negotiate the usual multiyear agreement as they no longer trust the government to honour one.
The government last year declined to pay the increase agreed for the third year of the 2018 wage agreement, prompting unions to take it to the Labour Appeal Court, where they lost. They have appealed to the Constitutional Court, which is due to hear their case on August 24.
One important outcome of the case so far is that it has provided clear confirmation that the National Treasury has the power to veto any deal if it deems the state cannot afford it. But the veto over last year's wage hike has caused much anger among public servants who feel they are being thrown under the bus because of a fiscal crisis caused by government corruption. They are determined to strike, say trade unionists.
But will there be a strike? Further talks are still possible before Wednesday, when the bargaining council has to decide whether there is a dispute and start the process of getting the parties to agree on a conciliator.
A key question is how much it's worth to the government to get more than a one-year deal, and whether it would be prepared to trade off giving a small increase in order to gain the three-year agreement that would align with the budget framework and provide budgetary certainty.
It arguably could afford to do so, given that the tax revenue shortfall came in much lower than originally expected for the fiscal year just past, reducing the deficit and the borrowing requirement - and that the same could happen again this year, with commodity prices still high and the economy not looking too bad.
And even though the market and ratings agencies are watching the wage talks closely as a test of the government's commitment to reining in debt, they might accept some "slippage". Some economists say an increase of more than zero but less than inflation might be tolerable.
Both sides will be weighing up the economic and political costs of a damaging strike, one that could spread across the public sector given that the government is understood to be keen to use the zero increase as a benchmark for state-owned enterprises such as Eskom, where unions are demanding a 15% increase.
We are in for an interesting, noisy few weeks.
• Joffe is contributing editor.
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