Markets & Finance

Rotich memo reveals Treasury fears over rising public wage bill


Treasury secretary Henry Rotich. PHOTO | FILE

Treasury secretary Henry Rotich has stopped fresh recruitment in the public service and announced new measures to curtail spending in a special memo that signals rising fears over the ballooning wage bill.

Mr Rotich says in the memo to Cabinet secretaries and accounting officers that new recruitment — except for essential services such as security, health and education — remain frozen.

The December 21, 2016 memo also stops the upgrading of schemes of service in the public service.

“The idea is to ensure that we have an appropriate labour force. To get an appropriate number, recruitment must be done in a manner that will not to create a bloated workforce,” Mr Rotich said in a telephone interview with the Business Daily.

The minister said that recruitment, upgrading of staff and replacement of critical technical staff will be considered on a case by case basis after obtaining the necessary approvals from the Public Service Commission.

Public Finance Management Regulations, 2015, demand that the national government expenditure on compensation to employees does not exceed 35 per cent of its equitable share of revenue.

President Uhuru Kenyatta’s government has since coming to power in 2013 struggled to contain the wage bill that takes 11 per cent of the gross domestic product (GDP) or 52 per cent of domestic revenues.

Total public wage bill stood at Sh568 billion in the last financial year well above the 35 per cent threshold.

In documents submitted to Parliament last month, the Treasury allocated additional Sh26.5 billion for civil servants’ salaries and house allowances, making them the biggest winners of the 2017/18 budget.

Adjusted salaries

The Treasury set aside Sh20 billion for the purpose of paying the adjusted basic salaries and Sh6.5 billion for the implementation of the third phase of the civil service house allowance scheme.

READ: Civil servants to get Sh26 billion for new pay perks in next Budget

The new remuneration structure will see junior civil servants earn more as the Salaries and Remuneration Commission’s (SRC) moves to bridge the huge wage disparities in the public sector.

“It is better to have a lean workforce and pay them well than have many people who are underpaid,” said Mr Rotich.

Kenya’s labour market has been in turmoil as trade unions push for better pay for members and implementation of collective bargaining agreements signed with the government in the recent past.

In the past four weeks, for instance, government doctors have been on strike, forcing the State to offer them a pay rise package that will cost the exchequer an additional of Sh4 billion annually.

The doctors’ union said Thursday it had rejected the offer, insisting on the full implementation of a 2013 CBA that, among other benefits, gave them a 300 per cent salary increase.

The public wage bill has also expanded with the annual recruitment of teachers, doctors and security personnel to replace staff that have retired, died or quit the service.

READ: MUGWE: What unions will not tell you about the doctors’ strike

The Teachers Service Commission, which employs about 290,000 teachers, accounted for Sh160 billion, or 36 per cent of Kenya’s public wage bill — which has risen from Sh278 billion in 2011.

Ministries, departments and agencies (MDAs) have been asked to curtail growth of their recurrent budgets. Further, accounting officers are required to prioritise proposed programmes within the set budget ceilings.

“The government spending should be directed to projects with highest impact on economic growth, poverty reduction and the well-being of the citizen. In addition to this, the government spending should be directed to those programmes which the private sector can reasonably carry out,” Mr Rotich says in the memo.

Mr Rotich has already significantly cut development spending in the current financial year, reducing project spending from Sh817 billion to Sh600 billion.

For subscriptions, contributions and utilities, the minister said the MDAs are required to provide a list of the obligations, including international subscriptions, payments and all other international obligations with their realistic costing and allocation while discussing the budget.
Debt repayments
Alongside the ever-increasing wage bill, the Treasury has grappled with growing debt repayments.

This year, for instance, the government is expected to spend Sh618.5 billion on public debt servicing, or approximately 40 per cent of tax revenues.

In a repayment bill presented in Parliament late last year, there was a 38.5 per cent increment in the amount to be spent on public debt from Sh446.4 billion to Sh618.5 billion.

This projected rise did not match the expected 12 per cent growth in tax collection.

The tight fiscal space has already had an impact on development spending which by end of September 2016 had consumed only Sh41.8 billion against the annual budget of Sh416 billion.

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