JOHANNESBURG, Aug 25 (Reuters) - A wage agreement between South Africa’s government and civil servants for the 2021/22 fiscal year will cost about 20 billion rand ($1.34 billion), the National Treasury said on Wednesday.

The government and public sector employees struck a one-year deal last month for a 1.5% salary increase plus a cash payment after several months of negotiations.

Trade unions initially demanded far larger above-inflation increases. The government wanted to keep salaries flat to rein in a gaping budget deficit exacerbated by the COVID-19 pandemic.

But when talks reached a deadlock and unions threatened strike action, the government softened its position.

The National Treasury said in a presentation before a parliamentary committee that the 20 billion rand cost was above the compensation ceiling contained in this year’s February budget.

“Work is ongoing on how to address the wage agreement within the current constrained environment,” the presentation added.

The government’s wage bill, accounting for about a third of consolidated spending, has been a major concern for credit-rating agencies that have downgraded South Africa’s sovereign debt to “junk” status.

$1 = 14.9259 rand Reporting by Alexander Winning; Editing by Edmund Blair

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South Africa public sector wage deal will cost 20 bln rand, Treasury says