Nairobi pays price as EA peers do better job on payroll costs
COST-CUTTING: Kenya pays heavy price for ignoring public opinion, absence of public wage policy and bloated civil service. TEA Graphic
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Multiple sources in the government said that retrenchment in the bloated civil service will be the next logical step and the most viable long-term solution.
Kenya is currently grappling with increased budgetary needs especially to finance infrastructure projects such as the Standard Gauge Railway amid revenue shortfalls, leaving Nairobi with the option of borrowing more.
Kenya is projecting a Ksh291.5 billion ($3.4 billion) budget deficit in the next financial year, which begins in July.
Layoffs in the civil service appear almost certain as Kenya seeks to rein in a runaway wage bill that threatens to bring the country to its knees.
Multiple sources in the government said that retrenchment in the bloated civil service will be the next logical step and the most viable long-term solution as the country grapples with a payroll bill that is expected to take up 55 per cent of tax revenue this year, leaving very little money for development spending.
While the Uhuru Kenyatta administration cut the number of Cabinet ministers from 42 to 18, the government is running the largest public service in independent Kenya’s history, with economists warning that leaders have had little regard for public opinion, which has been heavily tilted against a bloated government.
This has left Treasury hard-pressed to raise money meant to finance the bloated public service and the accompanying bureaucracy arising from the 47 county governments and several public funded institutions created under the 2010 constitution.
Kenya is currently grappling with increased budgetary needs especially to finance infrastructure projects such as the Standard Gauge Railway amid revenue shortfalls, leaving Nairobi with the option of borrowing more.
A rise in borrowing carries with it the potential of triggering higher interest rates and reduced demand for borrowing from the private sector, stunting growth.
In the next fiscal year, Kenya is for example proposing to review its income tax structure and scrap tax exemptions to seal revenue leakages, and help narrow its widening budget deficit.
Kenya is projecting a Ksh291.5 billion ($3.4 billion) budget deficit in the next financial year, which begins in July.
The deficit will also see the government turn to the domestic market to raise at least Ksh190.8 billion ($2.24 billion), Treasury says in the 2014 Budget Policy Statement that details spending plans for the next fiscal year.
And at 13.2 per cent of the country’s GDP for financial year 2013/4, Kenya parades the highest wage bill to GDP ratio in the region. Public sector wages take more than half (50.4 per cent) of the country’s GDP (wealth). International benchmarks for the two figures are seven and 35 per cent, respectively.
The high spending on the public service is coming at a time when the administration is facing pressure to improve the living conditions of millions of Kenyans as it battles surging public spending.
Pressure to act is also believed to be coming from the International Monetary Fund (IMF) from which Kenya has sought an emergency loan and whose boss Christine Lagarde visited Nairobi in January.
In an advisory note dated February 11, the fund advises that one of the challenges to Kenya’s economic growth prospects is “the reining in of the recent increases in the wage bill that could crowd out spending in much needed infrastructure investment and social protection and the rolling out of devolution.”
The government has come under heavy criticism over the failure of the benefits of growth to trickle down to lower income groups, leaving household incomes to lag far behind the rate of inflation and the cost of living.
Recently rolled out policies — especially under the Kibaki administration — have, for example, done little to lift the majority of Kenyans out of poverty.
A report released by the quasi-government think tank Kenya Institute of Public Policy Analysis and Research (KIPPRA) two weeks ago shows that Kenya’s poverty levels have oscillated between 44 and 46 per cent for the past six years.
However, this represents an improvement from 12 years ago when the poverty level stood at 56 per cent before falling to 46 per cent in 2005.
Unemployment especially among the youth remains one of Kenya’s top policy headaches to which the government has responded with successive step gap measures such as revolving funds to help stem a looming social upheaval. These efforts have, however, come under intense criticism over the methods of execution and their overall impact on poverty.
Kenya’s indices are dismal compared with its East African peers who seem to have done a better job of managing their public sector wages.
Tanzania’s public wage bill to GDP ratio is at 8.1 per cent, Uganda’s at a low 3.9 per cent, same as Rwanda. Only Burundi seems to be in the same territory as Kenya at 11.3 per cent.
“It is no longer a question of if, but when. A sense of inevitability has set in, a realisation that we cannot go on like this,” said a senior civil servant who cannot be quoted as he is not an authorised spokesperson on the issue.
On Monday, President Kenyatta thrust the wage bill into the national agenda when he opened a national conference on the issue. A week earlier, at the end of a meeting with his Cabinet, the president had announced that he, together with his deputy would take a 20 per cent pay cut.
Cabinet secretaries and principal secretaries joined in the gesture with a 10 per cent reduction in their pay packets. On Monday, a tough-talking president said parastatal chiefs had to join in and take a 20 per cent pay cut or “leave.”
While the “voluntary” pay cuts have been widely derided as “cosmetic and of no consequence” by most pundits and the opposition as they are unlikely to result in any material savings, they have great symbolic value and have served to show the seriousness with which the government is handling the issue and put in the national consciousness.
Beyond the window-dressing and as a first step in cleaning up its act, the government, through the Ministry of Devolution and Planning is currently doing a payroll audit.
“The government is auditing its payroll to ensure that only legally-hired employees are paid a salary. Ghost workers must go,” said the president.
Of the nearly 700,000 civil servants who collect pay from the government monthly, a good number do not engage in any productive labour and in some cases, do not even exist.
There are also cases of some people earning multiple salaries. If recent audits by the county governments of Nairobi and Mombasa are anything to go by, then the problem of ghost workers may be bigger than envisaged.
According to Timothy Oketch, an economics lecturer at the United States University (USIU) In Nairobi, the absence of a comprehensive wage and employment policy is to blame for the unchecked spiralling in the public sector wage bill beyond acceptable thresholds.
“Additional employees at both national and county levels, inflation and frequent demands for pay hikes by certain cadres like teachers and doctors, existence of ghost workers, waste and duplication are to blame. Other factors include high allowances, multiple constitutional bodies and the haphazard creation of new positions, both by national and county governments,” argued Dr Oketch.
He singles out devolution as a major challenge and calls for rationalisation in employment between the national and the 47 governments in the counties.
In his view, the other solutions would be a national wage policy to address the low productivity of the civil service and a restructuring of government, which could involve the scrapping of certain positions and organisations.
Marubu Munyaka, a financial consultant who has advised on government projects, argues that the best solution would be to increase the country’s income.
“If the revenue base is enhanced, then the wage bill as a percentage of total government revenue will come down. Kenya Revenue Authority and the entire government should expand the revenue base as opposed to dealing a blow to public servants wages. The impact of reducing salaries would not be material in my own thinking. It is a bad Human Resource policy to reduce a perk that an employee has enjoyed under his contract,” said Mr Munyaka.
But as Kenya grapples with its huge and growing public wage bill, the lingering question is whether President Kenyatta, who has always cut the public image of Mr Nice has the nerve to pay the political price that inevitably comes with massive job layoffs.
Already, the issue of pay cuts is causing friction within the ruling Jubilee coalition, with some MPs, mainly from his Deputy’s United Republican Party (URP) voicing strong opposition to the move and its rationale.
There is also the challenge of preaching austerity to public servants who have long become accustomed to the “good life” from public coffers.
It was not lost on observers that the meeting at which the president announced he and his Cabinet would take pay cuts was held at one of the country’s most expensive hotels.
The pay cuts also came after a recent increase in the pay of most members of the Executive.
