South African public service unions and the government have failed to reach an agreement on workers' pay, a government source said on Saturday, raising the prospect of a major strike in Africa's most advanced but ailing economy.
Unions collectively representing around 1.3 million nurses, teachers and police officers are demanding above inflation pay rises of 10 per cent across the board, in addition to significant increases in housing and medical aid allowances.
The government is offering a CPI-related 5.8 per cent increase in a three-year deal that will replace an existing agreement which expires on March 31.
"The secretary of the bargaining council will now appoint a conciliator to help the parties reach an agreement and settle negotiations," the source told Reuters.
Any strike action will hurt investor sentiment and hit economic growth, forecast at 2 per cent this year, as South Africa struggles to escape the effects of a wave of strikes in its key mining and manufacturing sectors.
"The likelihood of strike action has increased two-fold and that is the problem. This has been done at the initiative of the employers and I don't understand why," said Leon Gilbert, spokesman for the independent Public Servants Association.
No one was immediately available from the government or the main public sector union, Cosatu, which represents more than half of all workers.
Bowing to double-digit wage increases demands could call into question Finance Minister Nhlanhla Nene's fiscal commitments to rein in spending and cap borrowing costs. It may also trigger credit rating downgrades.
The public sector wage bill has risen more than 80 per cent over the last decade with an average annual growth rate of more than 6 per cent above inflation.