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Row emerges over IMF civil servants wage freeze demand

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Disgruntled workers protest. Last week, Labour minister John Munyes announced a proposal to raise by 10 per cent the minimum wage. Photo/FILE

A rift has emerged within government over an International Monetary Fund condition to freeze civil servants’ salaries for three years — pitting the Public Service Ministry against the Treasury.

The tussle, if unresolved, looks set to trigger labour unrest since the condition has also been opposed by the Kenya Civil Servants Union, which has taken the government to court for non-payment of salary increments agreed on in 2008.

It may also lead to conflict within the grand coalition.

“Competition in the labour market cannot allow us to adopt such a freeze since we shall lose our employees to the private sector,” said Public Service minister Dalmas Otieno.

The proposal, initially agreed between the Treasury and the IMF, was to result in a three-year public sector wage freeze in return for the release of a Sh40 billion loan, agreed late last year, to boost foreign exchange reserves.

The IMF report announcing the wage freeze was signed by Finance minister Uhuru Kenyatta and Central Bank of Kenya governor Njuguna Ndung’u.

With the union winning the backing of Mr Otieno, who termed the proposal as unacceptable, the stage looks set for a dispute over the implementation of the freeze.

“(The wage freeze) is also not feasible at a time when we are working at enhancing productivity of every civil servant which calls for salary increments to complement these new demands,” said Mr Otieno.

The move by the Treasury to sign the agreement — allowing only marginal adjustments for government employees’ pay in line with prevailing inflation rates — also appeared to be in conflict with the new Constitution that delegates authority to review public servants’ pay to the yet to be established Salaries and Remuneration Commission.

IMF resident representative Ragnar Gudmundsson said Thursday the institution “does not have a ceiling on the wage bill,” but put a condition on the Treasury to ensure “budget balance” when it signed off the loan.

“We concurred (with Treasury) that apart from a one-off increase in Civil Service wages in 2011, there should be no further increase in real wages for public servants in the context of the programme,” said Mr Gudmundsson.

He added that the IMF had also called for standardisation of government workers’ pay structure “to eliminate existing distortions.”

With an IMF team expected in Nairobi next month or in June for the first review of the credit programme, the government move may be subject of discussion.

But on Thursday, Economic Secretary Geoffrey Mwau said the Treasury was not aware of the opposition by civil servants to the wage freeze.

“I have not seen any official communication to this (from the Public Service minister) so I cannot say much at this time,” said Dr Mwau.

Last week, Labour minister John Munyes announced a proposal to raise by 10 per cent the minimum wage ahead of this year’s Labour Day celebrations to compensate workers for the soaring inflation.

Labour experts reckon that a wage freeze could further make the Civil Service more unattractive to hiring and retaining top talent necessary to drive the economy.

Kenya Civil Servants Union maintained that it would continue its push for a 20 per cent wage rise for middle level government workers and a tripling of the wages of the lowest paid State employees in line with the rising costs of living.

“The situation on the ground demands for at least a 20 per cent increase and it would be disastrous for the Finance ministry to enforce such a policy without considering its impact on the employees,” said Mr Tom Odege, the union’s secretary-general.

Mr Otieno said the Public Service ministry will roll out the proposed medical scheme for all civil servants on July 1.

The new cover will see top government employees--Job Group R and above get upto Sh2 million inpatient cover with the junior employees--below Job Group G getting a maximum of Sh500,000.

This new health scheme compares to what the private sector is offering, and could make officers lured to the private sector stay.

However, civil servants will wait for another year for an adjustment of their housing allowances.

“We are conducting a detailed survey on the current market rates for rents across the country that will inform the new housing benefits and this process will take at least one more year,” said Mr Otieno.

Inflation appears to have been a key concern in Treasury’s agreement with IMF – causing the Bretton Woods institution to demand that the CBK files an explanatory report with the Treasury should it deviate from the target by two percentage points or more.

The inflation rate has already touched 9.19 per cent in March and is expected to rise even further fuelled by higher oil prices, which are above CBK’s target of five per cent.

Treasury will also be expected to meet the stringent lending conditions even as it meets the demands for expanded bureaucracy under the new system of devolved government.

According to economic analyst Robert Shaw, Treasury may be forced to go back and renegotiate the deal with the IMF to avert the looming stand-off.

“This is a difficult situation that the government finds itself in and it may consider fresh negotiations since three years are a long time, especially with current indications that inflation pressure is not going down soon,” said Mr Shaw.

A backdrop of high inflationary pressure could expose thousands of low cadre government workers to the risk of purchasing power erosion -- a recipe for labour unrest.

The IMF, which operates like a credit rating agency for other donors, released to Treasury $509 million- with the loan expected to unlock more than $1.6 billion (Sh128 billion) from other bilateral donors.

Public sector wage bill stands at Sh197.7 billion this financial year or 20 per cent of total government expenditure.

That figure does not include pension and related payments that will consume additional Sh28.6 billion this fiscal year pushing the total wage bill to 23 per cent of the national budget.

Public sector wages and emoluments are expected to rise to Sh218.4 billion in the next financial year that begins in July while the pension bill will touch the Sh40.5 billion mark.

This means that total expenditure in salaries, pension and related payments will rise 10 per cent and 42 per cent, respectively -- higher than the projected rate of economic growth of about six per cent.

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