TOUGH TIMES

Job cuts loom as broke government reviews rising wage bill

Treasury has a long-term plan of ensuring the wage bill is not more than 35 per cent of revenue.

In Summary
  • The country is currently spending Sh48 from every Sh100 it collects on salaries for public servants, exerting pressure on the country's budget.
  • The government will also look at the increasing pension liability currently standing at Sh1 trillion.
SRC chairperson Lyn Mengich during a press conference on May 15, 2019.
SRC chairperson Lyn Mengich during a press conference on May 15, 2019.
Image: ENOS TECHE

The government is considering retrenching public servants as a way of reducing the ballooning wage bill.

The Salaries and Remuneration Commission (SRC) has called a meeting next week to discuss a number of options that it hopes to implement in the next three years.

The SRC says although the wage bill has reduced from 57.33 per cent of the country's total revenue in 2013-14 financial year to 48.1 per cent in the last financial year, more measures are needed to drive down personnel costs to not more than 35 per cent.

 
 

"A wage bill that does not match economic revenue growth puts pressure on development and investment share of the fiscal budget, meaning that there is less money to devote to development projects and provision of social services such as medical care and education," SRC chairperson Lyn Mengich said.

The decision to review the wage bill has been necessitated by declining revenue collections by KRA and high foreign debt payments, which have forced the National Treasury to undertake massive budget cuts.

Late last month, acting National Treasury CS Ukur Yatani announced a raft of measures to cut on government expenditures. They included cut on the amount spent on phone airtime, newspapers, advertisement,  delegations for international trips, vehicle acquisition and rental.  

He said this was necessitated by the need to enhance requirements for the Big Four Plan, emerging expenditure pressures, the underperformance of revenue and the already high level of borrowing.

“It is inevitable that public spending is tightened," he stated.

On Wednesday, the SRC said because competing for expenditure needs in government, the country requires spending efficiency, including the wage bill.

"Despite implementing three rationalisation programmes aimed at fit-for-purpose public service, the public service still does not fully meet the expectations of the citizens and the wage bill remains higher than the PFM Act target," Mengich said.

 

The SRC announced that it will host a two-day conference dubbed 'Transforming Kenya's Economy through a Fiscally Sustainable Public Wage Bill'. It will be addressed by President Uhuru Kenyatta and all options will be discussed. 

Public Service CS Margaret Kobia, however, ruled out retrenchment as an option to ease public wage, saying the conference may decide that nonproductive employees leaving through natural attrition will not be replaced.

''Retrenchment is not an option. We learnt a lot from the one conducted in the early 2000s. When you retrench, you increase the poverty level. We may consider not to replace those who retire or not renew contracts.

"We, however, consider hiring more health officers and teachers. Those are some of the most critical areas we must continuously take care of," Kobia said.

In its Medium-Term Policy Framework, which served as the basis for IMF discussions, Kenya had promised to send home 32,348 civil servants or 15 per cent of civil servants by 2002 in public service reform to rearrange government spending.

Kobia hinted that contractual engagement, especially for junior staff, could be one of the ways to cut on the ballooning wage bill.    

On the conference, Mengich said, "Deliberations of the conference will focus on sub-themes that will address strategies and policies to improve efficiency and generate additional revenues to create the needed fiscal space to accommodate larger wage bill."

The country is currently spending Sh48 for every Sh100 it collects on salaries for public servants, exerting pressure on the budget and crowding out allocations for development and social growth.

The conference will, for instance, look at the numbers and skill competition of government employment, how they impact service delivery and wage bill with a view of ensuring optimisation. After this exercise, those with undesired skills are likely to be kicked out to ease pressure on the wage bill.

According to the latest Economic Survey by the Kenya National Bureau of Statistics (KNBS), the country has about 800,000 public servants, gobbling at least Sh710 billion in wages last year from Sh500 billion in 2013-14. This year, the Treasury is expected to spend at least Sh760 billion.

Teachers and those in the medical sector are, however, likely to be spared if the conference endorses retrenchment as a way of slashing the wage bill. Teacher Service Commission chairperson Lydia Nzomo, who was at the press conference, said the commission is expected to hire more to fill the deficit. 

Contractual engagement

At the conference, the government will also look at the increasing pension liability currently standing at Sh1 trillion. Mengich lamented that the civil service has been running an unfunded pension scheme, which has been increasing liability over the years. This despite the Public Service Superannuation Scheme Act on contributory pension scheme being passed in 2012.

To reduce the burden, the government is likely to downgrade its engagement with employees to a contractual basis, removing them from the pension plan. Mengich declined to reveal if this was part of the plan, saying she didn't want to preempt the discussion.

Even so, starting July, the Public Service Commission said it will be recruiting employees on three-year renewable contracts. The civil servant's employer said the policy shift was in line with international best practice geared towards easing the pressure on the rising wage bill — both in terms of salaries and pensions for retired public servants.

"By hiring on contract, we want to disturb the 'comfort nest' so people are retained based on performance," Public Service Commission chairman Stephen Kirogo told a local paper in June. 

The annual pension bill has also been on the rise, with more public servants reaching the mandatory retirement age of 60, increasing from Sh27.9 billion in 2013-14 to Sh65.1 in 2017-18.

The SRC estimates pension expenditure for the current financial year to be Sh104 billion. The commission is, however, keen on retaining retirement age at 60, with Dalmas Otieno, a commissioner at the salaries agency, saying most employees reach the peak of their careers at 55 years.

(Edited by F'Orieny)