Treasury gives IMF date for civil servants pay cut

Civil servants face deep cuts in allowances in the six months to June next year as part of Kenya’s commitment to the International Monetary Fund (IMF) to lower the public sector wage bill.

The Treasury informed the IMF the perks will be reviewed ahead of June next year in the undertaking tied to the Sh261 billion loan agreements that Kenya has inked with the multilateral lender.

The allowances cut and pay freeze until 2025 dampen the civil servants’ prospects of better fortunes amid tough economic times due to the Covid-19 pandemic.

The State aims to curb allowances at a maximum of 40 percent of a public worker’s gross pay, shifting from the present unregulated model that lifts the take-home up to 259 percent of the wages.

The Treasury has been struggling to raise revenues to run the bloated public wage bill that consumes more than half of taxes, impeding spending on development projects.

The allowances that look set to be chopped include entertainment, responsibility, medical and utility, which covers items such as water, electricity and phone calls.

Subsistence allowance

The daily subsistence allowance or per diem, which the Salaries and Remuneration Commission (SRC) say is widely abused to inflate pay, will also be reviewed.

“The Salaries and Remuneration Commission (SRC) is currently consolidating comments and feedback from stakeholders. The final allowances and benefits policy will be issued by December 2021. Public sector institutions shall implement the policy in full within six months of issuance of the policy,” said the IMF in its latest review of Kenya that was made public Friday night.

This signals that State is targeting all government workers to be on lower perks at the start of the new financial year in July 2022.

The IMF disclosure came after it released the second tranche of Sh43.86 billion ($407million), which is part of the lender’s $2.4 billion (Sh258.65 billion) facility to Kenya.

Kenya got the first disbursement amounting to $314 million (Sh33.84 billion) in April.

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

The IMF advisories and disclosures come on the back of its multibillion-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.

The cut in perks is one of the strategies, alongside a freeze in new hiring and removal of ghost workers, aimed at reducing Kenya’s ballooning public sector wage bill.

There are currently over 247 remunerative and facilitative allowances, up from 31 in 1999, payable within the public sector and they have the effect of doubling a worker’s monthly pay.

The SRC reckons many of the allowances being paid are already catered for through the workers’ basic pay, ultimately inflating salaries.

These perks include a medical allowance, an entertainment allowance, and a utility allowance to cater for water, electricity, airtime and security bills.

If adopted for all government employees, the remuneration guidelines will see the reduction of the wage bill by approximately Sh100 billion annually.

The wage bill for the 865,200 public servants stands at more than Sh800 billion, having risen from Sh458 billion in 2013. The 247 allowances account for 48 percent of the total wage bill.

Policy absent

“Absence of a policy to guide management and administration of allowances and benefits in the public sector has led to proliferation of allowances, distortions in remuneration, unfairness in pay, lack of transparency, accountability and inequity,” says the SRC.

The agency says no public entity will be allowed to pay higher allowances just because it has strong financial muscles and the ability to pay.

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 at about 25 percent of civil servants’ gross pay while the SRC favours 40 percent.