Opinion and Analysis
The economics of teachers’ clamour for higher wages
Posted Sunday, September 27 2015 at 13:17
Kenya has been in the grip of a teachers’ strike, which a court has since ordered suspended, over government failure to effect a 50 per cent pay rise.
The state argues it has no money. What does that mean? And is that the only economic factor to consider? I am of the view that teachers should be paid, so what’s the problem and can these issues be resolved?
Well let’s look at the concerns government has. Firstly, raising teachers’ wages will raise recurrent expenditure. This column has already analysed government spending patterns; recurrent spending is already too large and has to be brought down.
Analysis by the International Budget Partnership indicates that in 2013/14 the government spent 78 per cent of the budget on recurrent expenditure.
For 2014/15, recurrent expenses will eat into 63 per cent of the budget. This year, the recurrent versus development estimate stands at 52 per cent to 48 per cent. Implementing a wage increase for millions of teachers will push the recurrent budget up. This is a concern.
Secondly is the budget deficit; the 2015/16 budget deficit is set at 8.7 per cent of GDP. Implementation will raise this to 10-11 per cent of GDP according to some analysts. Why is this a problem? Well the larger the deficit the more pressure on government to borrow to meet this gap.
The government is already in significant debt at Sh2.5 trillion. Frankly, there is already concern how government is going to service this debt, particularly the foreign-denominated part in the context of a weak shilling. It is unlikely government will borrow more to pay the teachers.
The final issue is liquidity. The value of the Kenyan shilling has been tanking and although it seems to be stabilising, it is doing so at a much weaker point.
This has negative implications for servicing foreign debt as well as meeting the country’s import bill.
What does the teachers’ strike have to do with all this? Well, remember the government is trying to stabilise and eventually strengthen the shilling and there are several factors that affect the value of the currency.
One such factor is how much money is circulating in the economy. Because of the decline of the currency, CBK has been trying to reduce the amount of shillings in circulation through repurchase agreements.
The concern is that if teachers are paid, it will inject significant amounts of shillings into the economy and this may put additional downward pressure on the value of the currency.
As said before, this will have negative effects on the government’s ability to meet import bills and service foreign-denominated debt.
These are some of the factors informing the spectre of tax increases. But the truth of the matter is that there is a legal and, in my view, moral obligation to implement the wage increase.