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Economy

Treasury proposes pay freeze to tame runaway wage bill

The Treasury headquarters in Nairobi. Finance minister Njeru Githae and PS Joseph Kinyua are proposing salary freezes in next year’s Budget. Photo/File
The Treasury headquarters in Nairobi. Finance minister Njeru Githae and PS Joseph Kinyua are proposing salary freezes in next year’s Budget. Photo/File 

Massive job cuts and review of salaries are planned in the public service from July as the Treasury moves to manage a wage bill inflated substantially last year to get teachers, lecturers and doctors to end their strikes.

Finance minister Njeru Githae and permanent secretary Joseph Kinyua say in the Budget Policy Paper released last week that a leaner civil service would be a key focus in managing scarce resources in the next financial year.

“Choosing between competing objectives under tight fiscal strains will be needed at this moment. Therefore, difficult choices must be made to ensure that scarce resources are directed to priority areas of economic development,” they said.

Among the choices is “rationalisation of the public service to make it lean, efficient, effective and accountable”, official speak for layoffs and wage increase freezes.

“Salary pressures will also impact on pensions hence increasing the government contingent liability,” Mr Kinyua said. “Over the medium term, salary increases of all government employees will be given careful attention with emphasis on the principle of moderation.”

The Treasury said new recruitments and adjustments in civil service remuneration had raised the wage bill by Sh40 billion to Sh420 billion a year, about 40 per cent of government revenue, up from about 30 per cent three years ago.

In the current fiscal year, the Treasury estimates that total revenue collection shall be about Sh956.9 billion, meaning close to Sh382.8 billion could go into meeting the civil service wage bill alone.

The Kenya Revenue Authority (KRA) collected tax amounting to Sh707.4 billion for the 2011/12 fiscal year compared to Sh634.9 billion the previous year.

According to the Economic Survey 2012, Kenya had about 220,000 central government employees as at 2011.

Following hefty increases in salaries of civil servants forced through industrial action, the Treasury said it expected the Salaries and Remuneration Commission (SRC) to set the salaries of State officers and recommend pay for public officers to ensure fiscal sustainability.

The commission, established under Article 230 of the Constitution, is preparing to implement the recommendations of a job grade report by PricewaterhouseCoopers (PwC).

The consultant was to prepare a handbook for detailed rationalisation of new job grades but not salaries.

SRC is also expected to implement the findings of another consultancy that would evaluate and grade all teachers, parastatals and civil service workers’ pay and grades before these can be harmonised.

“State enterprises and public entities will be rationalised and consolidated in order to remove duplication and overlap,” Treasury said, adding that this would free resources for national development priorities.

Besides rationalising the civil service, the Treasury said it would also take to leasing of assets and equipment to help tackle the expected budgetary pressure in view of shortfalls in revenue collection.

The Treasury did not elaborate how it intended to take on the leasing of equipment such as cars amid concern that previous austerity measures were not effected to the letter.

In 2010 the Treasury indicated it would lease cars in a bid to help cut public expenditure.

It even placed a call for bids from motor vehicle dealers and leasing companies to provide at least 1,500 vehicles and 300 ambulances as well as run transport services on behalf of the Government.

The policy shift would have benefited financial institutions involved in asset leasing and vendors of fleet management solutions. The plans were not implemented.

Leasing of cars for instance allows a client to use a vehicle for a fixed period while paying monthly fees as the dealer takes care of maintenance during the contract period.

It also frees the capital that would have been tied up in the purchase of items, allowing organisations to concentrate on their core businesses.

The Treasury said revenue performance remained poor despite the pressure of the huge budget required to implement the devolved system of government.

Data showed that revenue shortfall has persisted into the last quarter of 2012. As at end of November 2012, cumulative revenue receipts amounted to Sh298.6 billion against a target of Sh353.2 billion resulting in an underperformance of Sh54.6 billion.

“The Government will step up efforts on tax administration and mobilisation of revenue to eliminate leakages and increase revenue collection,” Treasury said.

It added it would rationalise and even cut some expenditures so as to minimise increase in domestic borrowing beyond the sustainable level.

The government is currently implementing several facets of an Integrated Financial Management Information System (IFMIS) to help improve efficiency and block leakage of revenue.

A key component of the IFMIS will be an automated procurement and payment system that is expected help seal gaps in buying goods and services that end up costing the taxpayer more than Sh70 billion annually in lost revenue.

The system — Procure to Pay — would link up all government pay points and involve identification of users through passwords, meaning each action could be traced back to the initiator.

The procurement and payment module would replace the current uncoordinated accounting and budgeting system that makes it easy for dishonest officers to collude with suspected cartels in defrauding the government.

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