CUTTING COST

Kenya to cut wage bill to 7.5% of GDP in next five years – Treasury

At the conference, the government is expected to explore several models to cut on the ballooning wage bill

In Summary
  • To reduce the burden, the government is likely to downgrade its engagement with employees to a contractual basis, removing them from the pension plan
  • The wage bill at the current level of 48.1% of revenue is consuming much more revenue than the recommended requirement of not more than 35 %
Acting Treasury CS Ukur Yatani on November 15, 2018.
Acting Treasury CS Ukur Yatani on November 15, 2018.
Image: /JACK OWUOR

The National Treasury has said that Kenya needs to deliberately maintain its public sector wage bill within the stipulate target and international benchmark of 7.5 per cent of GDP for sufficient fiscal space.

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

Speaking when he opened a two-day National Conference on Transforming Kenya's Economy Through a Fiscally Sustainable Public Sector Wage Bill, acting cabinet secretary Treasury Ukur Yatani said the country's wage bill was too high and is shrinking resources for development.

 

"In the next five years, public sector wage bill must deliberately be maintained within the stipulated Public Management Fund Act target to enable the country have sufficient fiscal space to meet its obligations",Yatani said.

He added that due to the negative impact of a high wage bill, it is important that effective public sector wage bill management strategies be put in place to achieve the wage bill to revenue target of not more than 35 per cent.

"The wage bill at the current level of 48.1 per cent of revenue is consuming much more revenue than the recommended requirement of not more than 35 per cent, stipulated in the Public Finance Management Act,'' Yatani said.

His sentiments were echoed by echoed by Salaries and Remuneration Commission (SRC) chair Lyn Mengich who said the wage bill does not match economic revenue growth and puts pressure on development and investment share of the fiscal budget.

At the conference, the government is expected to explore several models to cut on the ballooning wage bill. Stakeholders are for instance likely to review the country's pension liability currently standing at Sh1 trillion.

Last week, SRC civil service has been running an unfunded pension scheme, which has been increasing liability over the years 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.

 

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.

Other options on the table includes freeze on hiring or not replace retirees.

Last week, Public Service Youth and Gender CS Margaret Kobia ruled out retrenchment as an option to ease public wage but said the conference may consider to clear non productive employees through natural attrition.