Professional Documents
Culture Documents
Contents
1
Introduction ................................................................................................................. 3
2.2
2.4
1 Introduction
1.1.1 Kenya faces a serious development crisis caused by very rapid growth of the
public sector wage bill that is now taking about one half the government revenue
(net of grants and loans), nearly one quarter of the annual national government
budget, and that took 13% of the GDP in FY 2012/13. This fiscal position is
unsustainable and it is out of line with the best international practices. A growing
wage bill puts pressure on the development and investment share of the budget
meaning there is less money to devote to infrastructure, hospitals, equipment
power generation, etc.
purchase of medicines and books that are needed in our public hospitals and
schools. It could affect GDP growth poverty reduction and job-creation adversely
if wages claim an increasingly larger share of GDP at the expense of savings and
investment. None of this is good for the future of our country under Vision 2030.
1.1.2
Kenya is not alone in this Governments around the world are coming under
increasing pressure to provide improved services while simultaneously reducing
government spending. Many Kenya citizens believe that government productivity
and efficiency can be improved to deliver the twin goals of better service delivery
and more efficient use of public sector finances. Employment and pay reform
within government is increasingly seen as the way to improve public service
management, improve service delivery, and maintain macroeconomic stability.
For these reasons, many developing (and developed) countries have embarked on
reviews aimed at reduction in the size of government.
1.1.3
But the causes of a rising wage bill are not the same everywhere. In Kenya there
has been a significant increase in employment in the public sector. New public
sector jobs increased by 58,700 between 2008 and 2012 (Economic Survey 2013)
and this explains part of the increase in the wage bill. Other factors which have
contributed to the high wage bill include:
3
1.1.4
(i)
(ii)
(iii)
Implementation of the Constitution of Kenya (2010) which created a bicameral legislature and resulted in the increase in the number of legislators
at the National Assembly and a new house , the Senate;
(iv)
(v)
These developments have led to an increase in the public sector wage bill from
Kshs.239.9 billion in FY 2008/09 to Kshs.464.9 billion in FY 2012/13 that could
rise to an estimated Kshs.521.6 billion this FY 2013/14. Over the period under
review, the wage bill as a percentage of GDP increased from 11.0 % in FY
2008/09 to an estimated 13 % in the current FY(2013/14). The wage bill as a
percentage of government revenue has also increased from 49 % in 2008/09 to
55 % in 2012/13.
1.1.5 The Public Service Wage Bill is part of the overall recurrent expenditure of
Government and its growth has put pressure on non-wage expenditures, especially
spending on operations and maintenance.
1.1
summarized as follows:
1.2
(i)
To provide recent factual data on the composition of the public sector wage
bill, its relative size, in and its implications on economic growth and
development in Kenya.
(ii)
To propose policy strategies for reducing the public service wage bill and for
staff rationalization in order to release resources for additional development
spending and other key investment priorities.
(iii)
(iv)
1.3.2
a two-tier
1.3.3
1.3.4
It is important to note, however, that the Kenya Public Service Wage Bill
figures (Table 1 below) includes taxes payable by employees.
An
FY 2012/13
FY 2013/14
48.5
62.1
23.6*
Disciplined Services
22.3
44.4
64.3
Security Services
29.3
41.3
42.4
Judiciary
1.14
4.60
6.50
Teachers Service
66.5
133.0
138.0
Public Universities
13.3
21.6
26.4
9.3
17.3
Parliamentary Service
3.50
6.27
8.91
State Corporations
31.6
78.9
83.0
0.91
9.72
14.1
4.20
71.2
226.4
423.4
478.4
13.5
40.9
43.2
239.9
464.9
521.6
Officers
Counties
Total Salary **
Other Allowances
Total Public Service Wage Bill
Source: National Treasury
*Excludes civil servants working in the Counties
** Includes Basic salary, commuter and housing allowances
In other
words, if current trends continue salaries and remunerations in the public sector will
consume 64% of the tax revenue by 2016/17 exerting pressure on development
expenditure ( as stated earlier), debt servicing and other recurrent expenditure.
In addition to the rise in the number of state employees, the other cause of the
rising wage bill is the demand for higher pay to compensate for inflation,
especially from the unionized public sector workers. As one can observe from
Table 4, public sector wages actually fell in real term as between 2008 and 2012,
despite their rapid rise in nominal terms over that period. The largest drop in real
earnings followed the high increase in the consumer price index in 2008(16.2%) and
2011(14%). Taming inflation, must therefore be considered among the best strategies
to lower wage bill growth.
2.3 Employment Trends in the Public Sector: According to data presented in Table 2
below, a large proportion of wage employment in the public sector comprises of the
teaching staff (40%) followed by the Core Civil Service (18%) and State
8
2012
2013
112,000
123,498
123,897
81,693
93,366
98,894
2,532
4,294
4,439
236,800
260,800
274,729
Disciplined Services
Judiciary
Public Universities
17,012
20,648
Local Authorities
40,900
37,700
Parliamentary Service*
300
390
State Corporations
105,088
113,652
Constitutional Commissions*
275
952
10
Counties
42,184
596,600
655,300
682,605
Total
21,527*
490
115,493*
952
*Provisional
Source: KNBS
2.4 Despite these recent trends in public sector employment, Kenya is less dependent
on government for job creation than most African countries. Total employment in Kenya
comprises of formal sector (public and private), informal sector, self employment and
unpaid family labour. Agriculture remains the main source of employment in the
country in 2012. Public sector employment was only 5.1 % of the total labour force
and only 30% of total employment in the formal sector. Most of Kenyas employees
are therefore to be found in the private sector. Table 3 below puts the size of public
9
sector employment in perspective with regard to the countrys total labour force,
broken down by public and private sectors, formal and informal sectors.
10
2009
2010
2011
2012
15.9
16.4
16.9
17.4
17.6
Private Sector
1,309
1,347
1,396
1,441
1494
Public Sector
597
612
620
643
655
1,906
1,959
2,016
2,084
2,149
67.4
67.5
69.8
73.8
76.9
Informal Sector
8,039
8,676
9,332
9,919
10,511
Total Employment
10,012
10,703
11,418
12,077
12,737
31.3
31.2
30.7
30.8
30.4
6.0
5.7
5.4
5.3
5.1
% of Public Sector in
Total Formal Sector
% of Public Sector in
Total Employment
2.5
2.6.1
Given the prominent role played by the private sector in employment, it may
be worthwhile to compare private sector wages with those of the government.
A Study done for Kenya Salaries and Remuneration Commission last
year by KIPPRA on the wage differences between the privates and public
sector in Kenya, found that on average public sector wages are now
higher than in the private sector. However, this is only true when the
total compensation package in the public sector is computed to include
allowances, honoraria, gratuities, etc. If we consider the basic salary alone
the private sector has a clear edge. Furthermore, there are gross inequalities in
salary remuneration, even across the same grades in public service. The best
wages are paid in state corporations, constitutional offices and the defunct
local authorities. Notably real wages ( i.e. adjusted for inflation) have fallen
overall since 2008.
2.6.2
Table 4 shows the average wage earnings in the private and public sectors in
both nominal and real terms (after adjusting for inflation). Between 2008 and
11
2012 the average nominal wage in the public sector increased by 27.7 percent
from Kshs360,545 per annum to Kshs460,664 per annum which is higher than
in the private sector. As may be noted from the same table, beginning the
year 2010 onwards, the public sector wage in both nominal and real terms
increased at a higher rate than that of the private sector.
Table 4: Public and Private Sector Average Wage earning per employee
(Kshs Per annum)
2008
2009
2010
2011
2012
369,439
384,429
391,784
404,546
420,578
360,414
380,454
402,328
432,521
460,664
397,716
376,706
370,973
334,584
316,081
388,000
372,812
380,957
357,722
346,208
Nominal Wage
Real Wage
note(Table 4) that despite nominal wage increases, the average public sector wage
(and the average private sector wage) has declined in real terms over the five year
period to 2012. This implies that Kenya may be experiencing a wage/price spiral
where increases in the cost of living leads to demands for higher wages and
subsequent upward wage adjustments. The policy implication of this is that
medium to long term policy measures to cope with the high public sector wage
bill should also tackle prices and the need for higher productivity in the public
sector over the same wages.
2.6
Comparative Analysis of Kenya Public Sector Wage Bill with other African
states
2.7.1 Before coming to how Kenya compares to its neighbours it is fair to compare it to
the best international practices. It is clear that Kenya is moving away from the
best global practices. Table 5 below compares Kenyas public sector wage bill as
a percentage of GDP, wage bill as a percentage of government Revenue with
12
internationally desirable levels. Wage bill as a percentage of GDP has risen 11%
(2008/09) to 13% ( 2012/13) as compared to the desirable level of 7%: wages
took 55% of total tax revenue in FY 2012/13 as compared to 35% of globally
recommended level.
This trend is clearly unsustainable if Kenya is to achieve the goals it has set itself.
It is worth noting that Kenyas wage bill is taking a greater share of revenue than
in such countries as Liberia that are emerging form conflict.
Wage
11.0
11.4
Bill/GDP
Wage Bill
49.3
47.3
/Revenue
Source: National Treasury
2.7
2011/12
2012/13
11.3
11.0
13.0
47.1
48.1
55.0
Internationally
desirable
levels
7
35
In FY 2012/13 Kenya was doing worse according to these standards than her
East African neighbours- Rwanda, Uganda, and Tanzania. This can be seen
from Table 6 below. Kenya was getting closer to the levels of Botswana and South
Africa which are experiencing a fiscal stress. Kenya must ensure this trend stops.
At present Swaziland with the highest wage bill to GDP ratio in Africa is
experiencing low growth, increasing poverty, and a stalemate over an austerity
programme agreement with the IMF.
13
2012/13
11.2
8.5
3.9
6.3
3.9
7.8
2.8
2.9.1 Public sector wage bill as % of GDP: This ratio can vary between 5% and 25%,
with many countries around the 10% mark. The ratio depends on the relative
involvement of the state in the economy. Developing countries tend to have
smaller governments relative to GDP and consequently a lower ratio. Historically
has a lower percentage of the wage bill to GDP but that is now changing. Kenya
is now among those with a higher percentage.
2.9.2 Public sector wage bill as % of total public sector spending: In order to deliver
quality public services, governments need to spend money on goods and services
as well as wages and salaries. As a rule of thumb, when this ratio rises over 25%,
governments risk reducing their effectiveness by squeezing non-wage expenditure
such as goods and services, maintenance, and capital expenditure. In practice, this
means that hospitals will lack medicines; schools will go without textbooks, etc.
2.9.3 Average government wages compared to per capita GDP: Another way of
comparing how well countries use wages for public service as compared to public
welfare generally is to calculate average central government wages as a multiple
of GDP per capita. According to World Bank figures, Africa has one the highest
figures of public sector wages in multiples of GDP per capita. It was estimated at
5.9 in 2004 which is higher than Asia or Latin America using Kenyas 2011,
public sector average wage and GDP per capita figures, the country has a figure
of 11. In other words public sector average salaries are eleven times higher than
average income for a Kenya, which is apparently much higher than most of
Africa.
14
2.9.5 These percentages or ratios should be compared to the average for the countys
region, as well as with countries at similar levels of development farther afield. It
is important to note that policy recommendations cannot be "read off" the
employment and wage statistics alone. A complete picture needs to be built up
and discussed with all relevant stakeholders before designing an appropriate
employment and wage reform agenda.
2.9
Implications of the Wage Bill on Kenyas Fiscal Position
2.10.1 Recent Data (Table 7 below) shows that the government fiscal position has been
deteriorating with increase in deficit financing. Since the Government can only
finance from taxes or borrowing (domestic and external), the large demands of
financing government spending on public service wages appears to have
contributed to the
increase in
borrowing.
Table 7 Deficits, Debt Stock, and Interest Payments on Domestic Debt (Kshs
billion)
Kshs billion)
2009
2010
2011
2012
Domestic Debt
518,507
660,268
764,222
858,830 1,050,556
45,949
57,381
70,497
82,339
110,184
504,455
528,792
676,914
716,588
800,025
86
125
125
92
106
Domestic Debt/GDP
22.7
26.9
27.4
26.2
28.7
External Debt/GDP
22.0
21.0
24.0
21.8
21.8
Interest Payments
External Debt
Deficit Financing
2013
2.10.2 Since resources are fungible, the increases in public service wage bill mean that
such increases have over the past five years contributed to widening the fiscal
deficit and increased domestic borrowing. It may be noted from Table 7 above
that domestic debt has doubled over the past five years from Kshs 518.5 billion to
Kshs 1.05 trillion. The large increase in the stock of
increased from Kshs 45.9 billion in 2008 to Kshs 110.1 billion in 2013. Large
increases in interest payments on public debt reduce government discretionary
spending in subsequent years as increased resources go into servicing debt.
16
3.1
3.2
Output index-i.e. the amount that has been produced in the economic
activity;
ii)
Wages Value added Productivity- i.e. Value added per shilling spent on
iii)
iv)
v)
17
3.3
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Output index
Wage Value
Added
Productivity
Labour input
index
Labour
productivity
index
1.000
1.007
1.038
1.080
1.136
1.200
1.275
1.288
1.321
1.397
1.450
1.514
1.000
0.940
0.889
0.827
0.798
0.732
0.677
0.649
0.577
0.535
0.490
0.455
1.000
1.013
1.030
1.052
1.078
1.108
1.139
1.159
1.192
1.229
1.269
1.281
1.000
0.994
1.008
1.027
1.054
1.083
1.119
1.112
1.108
1.137
1.143
1.181
Labour share
0.397
0.423
0.447
0.480
0.498
0.543
0.586
0.613
0.688
0.743
0.811
0.874
3.5
Agriculture
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Output index
Wage Value
Added
Productivity
Labour input
index
Labour
productivity
index
1.000
1.016
1.059
1.076
1.075
1.071
1.093
1.113
1.159
1.200
1.252
1.297
1.000
0.879
0.838
0.746
0.700
0.629
0.687
0.630
0.607
0.614
0.574
0.548
1.000
1.001
1.001
1.000
0.994
0.987
0.954
0.969
0.993
0.941
0.977
0.995
1.000
1.015
1.058
1.076
1.082
1.085
1.146
1.148
1.167
1.275
1.281
1.303
Labour share
0.973
1.026
1.024
1.039
1.011
0.965
0.785
0.842
0.827
0.739
0.748
0.709
18
Table 9 above shows a marginal increase in the public sector output index of 30
percent over an eleven year period. Similarly, the labour productivity index
indicates marginal increase over the period. The wage value added productivity index
declined from index 1:00 in 2001 to index 0.548 in 2012. This illustrates the less returns
from every shilling the government spent on own employees by 0.4. The labour share in
the public sector exhibit increasing trend well above the 0.4 mark.
This is a worrying trend since the government wage increases is far ahead of the wealth
created in the sector.
productivity. The agitation for increased wages therefore calls for introduction of a
flexible, performance-based and competitive wage structures where salaries reflect the
job value and performance, i.e. productivity.
19
4.1
4.2
Other national laws that bear on the Wage Bill include The Public Service
Commission Act 2012, The Teachers Service Commission Act 2012, The Public
Finance Management Act (2012) and the Kenya Defense Forces Act. Being a
member of the International Labour Organization (ILO) Kenya has ratified one of
the fundamental instruments namely the ILO Convention number 98 on collective
bargaining. The other special Convention on Collective bargaining with specific
reference to negotiation in the public sector is number 151 whose principles can
guide in wage determination.
4.3
4.5
Finally, taking into account the fact that social dialogue is central and forms
one of the four strategic objectives of the ILO, the debates on the wage Bill will
require to be subjected to deep social dialogue between Government, the
representative of employers, and workers organizations and citizens.
21
5.1
More Growth: One of the best ways to reduce the government wage bill as a
percentage of GDP (which is what Kenya desires) is to ensure GDP growth
rises much faster than growth in wages paid to public servants. If GDP is
growing rapidly, revenues will also generally rise. If they rise faster than wages,
the wages to revenue bill ratio will also fall. To solve the problems dealt with in
this paper, Kenya must look critically on new ways to accelerate GDP growth to
the double digit level suggested in the Jubilee coalition manifesto.
5.2
making management practices more flexible, such that defined priorities are
easier to achieve;
Retrenchment:
Kenya has had a particularly bad experience of this under the structural adjustment
policies of the 1990s. But there are better ways of reducing the labour force in state
institutions without causing the social and personal tragedies of the 1990s. Nunberg
and Nellis (1995) list the following cost and employment containment measures in
increasing order of perceived political risk:
i.
ii.
5.4
iii.
iv.
v.
Freezing of recruitment.
vi.
vii.
viii.
ix.
x.
Recruitment freeze
In this decade, the select countries have resorted to the policy of recruitment freeze
to control growth of personnel numbers. Before the introduction of this policy
measure, there was guaranteed entry into the government payroll for large numbers
of pre-service trainees in all kinds of public training institutions. This policy has
been adopted to varying degrees of effectiveness in the select countries (see Table
10).
23
YEAR
1992
POLICY SPECIFICS
Total freeze except for
teachers and replacement of
health workers.
IMPACT
High
Tanzania
1992
Recruitment restricted to
replacements, and professional
and technical personnel in
essential services (teachers,
health workers, police and
prisons), and to be approved
by Head of the Civil Service.
Low
1995
High
High
High
Uganda
1990
1994
Zambia
1995
1997
24
Low
Low
REMARKS
Numbers in civil
service have,
reduced from
272,000 in 1993 to
216,000 in 1997.
Enforcement
mechanisms not
clarified.
Enforcement
mechanisms
clarified.
Compliance not
enforced.
Compliance
achieved with new
establishment
controls
Mechanisms to
ensure compliance
not effective.
More stringency in
monitoring
compliance with
the policy.
5.5
Rationalizing the Payroll: This has already begun in the current census of public
sector employees to establish who is actually on the government labour force.
Good practices in managing and controlling personnel costs revolve around:
5.6
5.7
example, there is a 1998 proposal in Kenya to cut the teaching force by a quarter
(63,000 out of a total 244,495) by applying a pupil: teacher ratios of 40:1 for
primary schools teachers and 30:1 for secondary schools teachers. Furthermore,
through the use of the ratios, areas and institutions that are overstaffed or
understaffed are identified and personnel redeployed on that basis.
Box 2
Swaziland
Swaziland has one of the highest public wage bills in Africa (about 17.7% of GDP in 2010/11).
As SACU revenue declined by almost 60% between 2008/09 and 2010/11, the budget deficit
reached 14% of GDP. In 2011/12, the governments access to domestic borrowing dried up due
to a loss of investor confidence.
26
Review recruitment practices that are inconsistent with the needs of the public
service and absorptive capacity of the national economy. Currently, some
recruitment is done to satisfy social and political expectations that the government
should alleviate the unemployment caused by low economic growth. The public
sector should not be viewed as creator of employment but rather a partner to the
private sector in facilitating improvement of investment capacity and creation of
jobs in the private sector.
ii)
There is need to review regulations and practices governing the creation and
filling of established posts.
iii)
iv)
There is need to develop a National Wages and Remuneration Policy to curb the
rising wage bill.
v)
There is urgent need to carry out a job evaluation exercise in entire public
sector to establish the relative worth of positions in all public organizations
and assign appropriate remunerations and adjust current inequalities.
vi) There is need for induction or training of actors in Industrial Relations on the
question of wage determination, and negotiation to ensure that CBAs balance
the interests of labour, capital and the state.
vii) There is need to ensure vetting of all CBAs by the Ministry of Labour prior
to registration and their implementation.
viii) There is need to sensitize the Judiciary on the economic and budgetary
position of the country. Very often Judges give wage awards which are way
out of line with the state of the economy and affordability in terms of the
available budgetary resources.
ix)
xi)
xii)
xiii)
xiv)
28
2 Annexes
Annex I: Definition of Terms Relating to Pay and Wage Bill
Award
Wages Guidelines
30
31
2008/9
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
22,598.49
23,762.46
24,517.00
20,363.66
24,833.28
32,935.83
36,258.77
36,258.77
36,258.77
2,567.17
3,538.96
3,392.93
3,869.25
1,806.43
5,231.06
9,595.60
9,595.60
9,595.60
25,165.66
27,301.42
27,909.93
24,232.91
26,639.70
38,166.89
45,854.37
45,854.37
45,854.37
10,020.00
3,340.00
25,165.66
27,301.42
27,909.93
24,232.91
32
26,639.70
48,186.89
13,825.91
14,517.21
15,243.07
63,020.28
60,371.57
61,097.44