Early attempts to resolve a wage dispute between the South African government and public-sector trade unions have failed and the dispute will now move to arbitration, according to the bargaining chamber where such wage disputes are heard.

The dispute has important economic implications. Public- sector salaries make up around a third of state expenditure and the government is trying to carve out more fiscal space to fight the coronavirus without falling further into debt.

It is also politically sensitive, since the governing African National Congress (ANC) is allied with some unions and will rely on them to rally support before local elections in 2021.

Unions have obtained a certificate of non-resolution of the dispute in the Public Service Coordinating Bargaining Council (PSCBC).

PSCBC General Secretary Frikkie De Bruin told Reuters, arbitration hearings would start by mid-June. An arbitrator will issue an award after the hearings are complete, with the matter potentially heading to court or resulting in a strike if the unions aren’t happy.

A public-sector strike could cripple service delivery and harm efforts to contain the coronavirus. However, while unions have alluded to the threat, for now they are focusing on resolving the dispute in arbitration or court.

Spokesman for the Department of Public Service and Administration, which is negotiating on behalf of government, declined to comment.

The wage dispute has been going on since February, when the government said it couldn’t afford the final year of a three-year wage deal struck in 2018 and tried to change the deal’s terms.

Then the government kept civil servants’ wages flat in April, the first month of the new fiscal year, even though the 2018 agreement promised inflation-linked pay increases.

Some unions have threatened legal action and protests to make the government honour the deal.