Economy

IMF deal that froze Kenya government workers Sh82bn pay rise

Lyn Mengich

Salaries and Remuneration Commission (SRC) chairperson Lyn Mengich on June 17, 2021 at the Hilton Hotel when she announced there will be no review of salaries in the public sector for the next two financial years. PHOTO | DIANA NGILA | NMG

Summary

  • Treasury promised IMF it will keep civil servants wages unchanged till 2025 as part of Sh252bn loan deal.

Kenya has frozen a Sh82 billion salary increments for all civil servants for two years, starting July following a deal agreed with International Monetary Fund (IMF) to keep pay unchanged until 2025.

The Salaries and Remuneration Commission (SRC) on Thursday revealed the freeze, highlighting the gravity of the country’s rapidly deteriorating cash-flow situation that is marked by near-stagnant revenues and worsening debt service obligations.

The Commission said the decision to suspend implementation of the third pay review cycle was made due to hard economic times caused by the Covid-19 pandemic.

It comes months after the IMF revealed that the State had committed to keep civil service pay unchanged for four years after the Fund’s board approved a new loan for Kenya valued at $2.34 billion.

Under the IMF deal, Kenya agreed to freeze pay to June 2025, curb fresh hiring and work on removing ghost workers, including staff who have died, retired or deserted duty.

The freeze in non-essential hiring and pay sets the stage for tough times ahead as costs of basic items such as fuel, rent and food continue to spiral.

Curbing perks

Civil servants last got a pay rise in 2017 and have used juicy allowances to enlarge their take-home pay, but the salaries agency has also announced plans to curb the perks.

The SRC has accused government officers of multiplying the number of allowances from just 11 in 1999 to 247.

“The National Treasury advised the commission that due to the effects of Covid-19 on the performance of revenue and the expected slow economic recovery, it should consider postponing the review for the next two fiscal years until the economy improves,” SRC chairperson Lyn Mengich said at a media briefing on Thursday.

This echoes the note released from the IMF in March, indicating the Treasury’s commitment to reduce the ratio of the government wage bill to GDP by about 0.5 percentage points by June 2024.

“This will be accomplished through continued restraint in hiring and wage awards, including in the four-year wage agreement that will come into effect in 2021/22 financial year and by improved wage bill management,” disclosed the IMF.

Kenya has struggled to reduce a bloated wage bill that is eating into development spending. It is expected the pay freeze help rein in public sector salaries to free up cash for projects such as building roads that ultimately create jobs.

Kenya’s public service wage bill stands at slightly above 50 percent of annual government tax revenue. The IMF puts the global benchmark at about 35 percent.

The IMF is expected to play a role in shaping policy that would require the government to implement tough conditions across many sectors.

Public purse

Its string of policy advisories come on the back of its multi-billion shilling loan facilities to Kenya where money flows straight into the budget to top up the public purse.

Under the administration of former President Mwai Kibaki, Kenya kept away from this type of credit, with most of the support from institutions like the IMF and the World Bank coming in the form of project support.

Kenya has recently faced a deteriorating cash-flow situation that has been worsened by the Covid-19 economic hardships.

Wage bill

The SRC data show that the wage bill has grown from Sh615 billion in the year to June 2016 to Sh827 billion last year, on the back of the juicy perks.

The 247 allowances account for 48 percent of the total wage bill.

The commission said if the Treasury’s revenue targets are met in the coming financial year, the freeze on pay increments will have the effect of reducing the burden of the public wage bill on Kenya’s revenues from 51.7 percent to 48 per cent.

More emphasis was put on allowances starting 2015 as the government saw it as an alternative to controlling its pension bill by not raising salaries.

State think-tank Kenya Institute for Public Policy Research and Analysis (Kippra) said that allowances paid to civil servants have made the government the preferred employer and called for a radical review.

Currently, allowances have the effect of doubling an employee’s pay and in some instances growing it by a factor of 10.

Kippra recommends capping of allowances to about 25 percent of civil servants’ gross pay while the SRC favours 40 percent.