* Treasury vows to block wage hikes above inflation
* Credit downgrades squeezing government borrowing
* Rand has weakened, likely to stoke inflation
By Mfuneko Toyana
JOHANNESBURG, April 18 (Reuters) - South Africa’s largest public sector union vowed on Wednesday to seek wage hikes above the inflation rate in coming negotiations, defying the new finance minister’s demands for restraint to avoid further credit downgrades.
The tough stance taken by the National Education Health & Allied Workers’ Union (Nehawu) raises the spectre of a protest wave seeking President Jacob Zuma’s resignation widening into strikes damaging to Africa’s most industrialised economy.
The public sector wage bill accounts for nearly half of government revenue and has risen more than 80 percent over the last decade, with yearly increases averaging more than 6 percent above inflation.
The Treasury may struggle to borrow the extra money it needs to plug the wide budget and capital deficits, as well as meet wage demands from civil servants, after damaging downgrades to junk by S&P Global Ratings and Fitch following Zuma’s sacking of respected Finance Minister Pravin Gordhan in late March.
Gordhan’s successor, Malusi Gigaba, has pledged to oppose above-inflation wage rises for state employees so as to preserve South Africa’s fiscal discipline and stave off a third credit downgrade by Moody‘s. But two of the largest public sector unions have promised to fight his plan.
“Any increase below 6.5 percent is a poverty wage. Whatever increase we get must be above 6.5 percent so that our workers can be able to afford the basic basket of goods,” said Nehawu spokesman Khaya Xaba. Inflation was 6.1 percent last month.
Nehawu is part of the ruling African National Congress-allied Cosatu, the country’s biggest union federation, which has called on Zuma to resign over the sacking of Gordhan.
The South African Democratic Teachers’ Union (Sadtu), as well two transport sector unions, have also said they would pursue above-inflation increases for their members.
The next round of wage negotiations is expected to begin in June or July.
Labour analyst Andrew Levy said a public sector strike was likely among “more militant” unions like Nehawu and Sadtu. “They will also likely play the card that the president needs all the support he can get, so he should be nice to unions.”
Nicky Weimar, senior economist at Nedbank, said the last two years had seen “more aggressive unions ... willing to strike even when times are tough”.
The Reserve Bank has projected inflation averaging 5.9 percent in 2017, with growth seen at only 1.2 percent.
But analysts say these forecasts would be upset by the downgrades, and forecast rising inflation and weak growth.
The rand has tumbled around 12 percent since Zuma recalled Gordhan from an overseas trip days and fired him. The drop has prompted the central bank to warn that the currency now poses the biggest risk to the inflation rate.
Gigaba, appointed in an abrupt reshuffle that shook markets and spurred the ratings downgrades, told reporters on Wednesday that investors had been unsettled by the turmoil afflicting the finance ministry. He said he needed to reassure investors as he prepared to fly out to an IMF meeting in the United States.
He dismissed calls from one of his own advisers for the nationalisation of banks and mines.
Protesters have taken to the streets demanding Zuma resign or be removed after the credit downgrades. His second term as president expires after an election in 2019.
Stoked by a weakening currency and miserable economic growth, South Africa’s national debt has risen to 2.2 trillion rand ($166 billion), nearly 50 percent of GDP.
To tame growing debt, the Treasury has embarked on a fiscal consolidation path of deep cuts to spending, raising taxes and freezing government hiring while also limiting civil service wages to inflation increases.
The government struck a deal in 2015 with 1.3 million state employees to raise wages by inflation plus one percent in 2016 and 2017, helped avoid a crippling strike that economists said would have dragged the economy into recession. ($1 = 13.3706 rand) (Editing by James Macharia and Mark Heinrich)