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State freezes civil servants hikes to meet IMF conditions but blames corona

NATIONAL
By Macharia Kamau | June 18th 2021

SRC Chairperson Lyn Mengich during a media briefing on the Out of the Third Public Sector Remuneration and Benefits Review at Hilton Hotel, Nairobi on June 17, 2021. [Boniface Okendo, Standard]

The Salaries and Remuneration Commission (SRC) yesterday froze pay hikes for public servants for the next two years, citing the adverse effects of Covid-19 pandemic.

The decision comes at a time when the National Treasury has entered into a financing programme with the IMF. Even as SRC says the pandemic is responsible, it is clear civil servants, including teachers have become the first victims of a far-reaching programme that Kenya entered with the International Monetary Fund (IMF).

The 38-month programme is expected to help Kenya increase its taxes and contain its expenditures.

The Commission was expected to undertake a review for the pay for government employees this year, as part of the exercise it undertakes every four years, and the new pay structures were expected to take effect in July 2021.

With the salary review for the financial years 2017/18-2020/21 ending in the current year, civil servants were warming up to a major boost, with the State expected to release Sh83.4 billion to their accounts.

However, National Treasury Cabinet Secretary Ukur Yatani blew the wind out of their sails after he wrote to the SRC that his ministry will not release the full amounts.

Instead, Yatani set aside only Sh6.8 billion, or 10 per cent of the Sh68 billion meant for the four-year salary reviews for national government workers in the upcoming budget. This excluded county workers.

Treasury CS Ukur Yatani presents the 2021/22 budget to the National Assembly, on Thursday, June 10 2021. [David Njaaga, Standard]

Besides the negative effects of Covid-19 pandemic which had depressed revenues, the Treasury CS said the budgetary constraints were also due to the upcoming General Election where they had already put aside Sh10 billion for the polls.

As a result, SRC, which had given the green light for the money to be disbursed, has been forced to eat humble pie and freeze any pay hikes for the civil servants.

SRC, which is mandated with setting and review of public sector wages, had expected that this year’s review to push up the wage bill by Sh82 billion over the next four years.

Last year, the government paid its employees Sh827 billion.

“There will be no review of the basic salary structures, allowances and benefits paid in the public sector in the financial year 2021/22 – 2022/23,” said Lyn Mengich, the SRC chair at a briefing yesterday.

Under the 38-month programme expected to help Kenya contain its expenditures, Yatani gave an undertaking to the IMF to gradually reduce the ratio of the government wage bill to GDP by about 0.5 percentage points by FY2023/24.

“This will be accomplished through continued restraint in hiring and wage awards, including the 4-year wage agreement that will come into effect in FY2021/22 and by improved wage-bill management,” said Yatani in a letter of intent to IMF managing director Kristalina Georgieva.

Periodic strikes

Potential investors to Kenya’s fourth Eurobond have also been warned about the risk of Kenya’s labour unrest by teachers and health officials. “Periodic strikes by doctors and teachers disrupt provision of health and education services in Kenya and may lead to further increases in the public sector wage bill, which could crowd out spending in much-needed infrastructure and affect the stability of the Kenyan economy,” reads part of the preliminary prospectus for the Eurobond.

To reduce its debt vulnerabilities, the government, under the watch of IMF, has embarked on a belt-tightening exercise that is supposed to free up cash to help grow the economy and reduce poverty.

Besides freezing hiring and pay-hikes, a number of fledgling parastatals will also be restructured in what is likely to result in job losses reminiscent of the 1990s-style structural adjustment programmes.

Among some of the institutions that will be affected by this purge will be the three major universities. The freeze in pay hike for public sector workers is however nowhere near the harsh realities that private sector counterparts had to go through.

The International Monetary Fund (IMF) signage. [Courtesy]

Many working in the private sector lost their jobs while most of those who were retained in the employment had to grapple with reduced salaries.

While the economy has since started recovering, many private-sector employees are still grappling with reduced earnings while many of those who lost their jobs are yet to get them back. The announcement by SRC faced opposition, from among others, secondary school teachers.

Akelo Misori, secretary general Kenya Union of Post Primary Education Teachers (Kuppet) said arguments used by SRC to freeze the pay reviews were not valid, arguing that projections indicate the economy is set to fully recover this year.

Kenya’s economy is expected to grow at 6.6 per cent this year. 

“The only relevant Kenyan figures in the release indicate that our economy is projected to grow by 6.6 per cent in 2021,” Misori said. “Moreover, the commission is purporting to block all salary reviews when as a matter of fact some cadres in the civil service have been accorded salary and allowance increments in the current financial year.” 

Kenya National Union of Teachers (Knut) Secretary-General Wilson Sossion said the move was ill-advised, terming it “very provocative and one that was likely to cause unrest in the labour sector.” The Knut boss said that teachers would not accept the new directive, adding that it was wrong for SRC to justify their decision by faulting “a bad economy”.

“SRC recommended Sh33 billion for teachers starting next July and that is what stands,” Sossion said

Francis Atwoli, the secretary-general of Central Organisation of Trade Unions (Cotu), said that the commission had no business meddling in the employer-employee relations between the government and public servants. The Cotu boss said that SRC cannot deal with workers directly as it was a mere “medium”. “SRC is an impediment to industrial relation practices. The workers do not work for SRC, they work for the government,” he said, adding that Cotu-affiliated labour unions would meet to discuss the next steps of action.

But Mengich said in arriving at the decision, the SRC had considered the government’s financial constraints, current public wage bill rations as well as the need to release resources for investment in the strategic priorities of the government to jumpstart the economy that has been ravaged by Covid-19. She also noted that the decision followed consultation with the Treasury, which noted that the government was stretched and could not afford to handle an increase in the public sector wage bill. 

“SRC engaged the National Treasury on the projected cost,” said Mengich. “The National Treasury advised the Commission that due to the effect of Covid-19 pandemic on the performance of the revenue and the expected slow economic recovery, the Commission to consider postponing the review for the next two fiscal years until the economy improves, and Treasury will review the performance of the economy and advise SRC as and when the review can be done based on the prevailing circumstances to ensure affordability and fiscal sustainability.”

SRC Chairperson Lyn Mengich. [Boniface Okendo, Standard]

The total amount of money paid as salaries to civil servants remains high, with SRC noting that it stood at 51.7 per cent of the ordinary revenues in the financial year to June 2020.

The Kenya Revenue Authority (KRA) last year collected Sh1.58 trillion in tax revenues, of which Sh827 billion was paid to government employees as wages and salaries.

An ideal scenario, according to SRC, would be where the public sector wage bill accounts for 35 per cent of KRA’s tax collections. The wage bill to GDP ratio stood at 8.3 per cent, which again is higher than the ideal 7.5 per cent.

SRC expects with the freeze in pay increments, the wage bill to ordinary revenue ratio will go back to 2018/19 financial year levels. 

“The current Public Sector Wage bill consumes a larger percentage of revenue than the target set in the Public Finance Management Act 2012 and a larger percentage of GDP compared to the average for developing countries,” said Mengich. 

While the measure will suppress the growth of the public wage, it will however not mean that the wage bill will stagnate at Sh827 billion.

Over the current review cycle, which started in 2017/18 financial year, the salaries have gone up 12 per cent from Sh733 billion in June 2018 to Sh827 billion in 2020. 

This is the third cycle of reviewing public sector wages by SRC, having undertaken reviews covering the four-year periods, with the first cycle being between the 2013/14 and 2016/17 financial years while the second cycle covered 2017/18 to 2020/21 financial years. 

SRC said it would review the situation after 2022/23 financial year to determine the way forward on the remaining two years for the third remuneration cycle. 

Last year, the Labour Ministry oversaw the signing of MOUs between the Federation of Kenya Employers (FKE) and the Central Union of Trade Unions (Cotu) that paved way for the implementation of such measures as pay cuts and employees going on unpaid leave without animosity between the employers and employees.

This, Cabinet Secretary for Labour, Simon Chelugui yesterday said, had enabled firms to manage to stay afloat and in turn saved a good number of jobs.

Covid 19 Time Series

 

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