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House backs civil service job cuts

POLITICS
By MACHARIA KAMAU and JEVANS NYABIAGE | November 29th 2013
 

By MACHARIA KAMAU and JEVANS NYABIAGE

Tens of thousands of public service workers face the sack should the recommendations of a key parliamentary body be adopted.

The Parliamentary Budget Office, which tracks the budget, finance and economy, has recommended downsizing of the civil service, which currently has more than half a million workers.

Released yesterday, the report recommends the sacking of low cadre civil servants and pushing out those over 50 years — numbering over 200,000 — through forced early retire public sector employees on contract after the age of 50. “This will give an exit window to those willing to retire early in addition to making employees on contract work harder to be maintained as staff,” said the report.

The report echoes a Cabinet decision last week that froze new recruitments, suspended adjustment of salaries and halted creation of new State corporations.

This is also in sync with the recent push by the Presidential Task Force on Parastatals Reforms appointed six months ago for the dissolution, merging or transfer of some functions of State Corporations. The report is the latest signal yet that the Government is cracking under the weight of a soaring wage bill.

Sharp rise

The size of the public service is increasingly becoming a concern due to a sharp rise in public wage bill, which is expected to surpass half a trillion shillings this financial year.

“The Government needs to rethink its position as an employer,” said the Parliamentary Budget Office in the report titled The Public Sector Wage and its Implications on Economic Performance in Kenya.

The public wage bill has nearly doubled in less than five years to stand at Sh457.5 billion in the 2012/2013 financial year. This was about 90 per cent from the 2008/2009 wage bill, which stood at Sh240.5 billion.

The country’s public wage bill is estimated at 12.1 per cent of the Gross Domestic Product (GDP), consuming half of Kenya’s total revenue.

In this financial year, the total additional public sector wage bill for both national and county governments will amount to Sh141.5 billion.

The jump of the public wage bill was aggravated by the expanded new system of government that increased number of elective posts.

Pensions for retirees

The recently elected officials pushed for higher perks even before they settled in office. In the recent weeks, there has been push to abolish some of these posts across the county assemblies, Parliament and Senate to cut the wage bill.

Kenya’s public wage bill is higher than the international standards of 7 per cent of GDP and 30 per cent of total country’s revenue. Kenya’s neighbours—Tanzania and Rwanda, have their public wage bill standing at below 5 per cent of GDP.

Even as the report recommends retrenchments, this poses another challenge of financing exit options for the workers that will be let go as well as pensions for retirees.

The move by the Kibaki administration to increase retirement age in 2009 from 55 to 60, is also partly to blame for the large workforce in the civil service as it delayed retirements while Government kept on hiring.

“This slowed down the rate of attrition thus maintaining the wage bill at a higher level,” says the report.

Now, this is expected to put more pressure on the Government’s dry coffers in financing the ballooning pension payments. 

More than 20,000 civil servants and teachers are set to retire next year, which is expected to plunge the Government into a pension expenditure crisis. Starting April 1, 2014, the senior workers will exit the public service, following the expiry of a five-year extension period on the retirement age.

“This had the impact of deferring some of the pensions outgo, and as the individuals now approach their 60th birthday, it is anticipated that there will be a spike in the Government’s pensions expenditure,” Alexander Forbes East Africa Managing Director Sundeep Raichura said in an earlier interview.

Recovery mode

This is even as the Controller of Budget Agnes Odhiambo warned that Kenya’s development may not be realised if its current wage bill remains high.

Ms Odhiambo said more than 41 per cent, about Sh252 billion of recurrent expenditure, which currently stands at Sh611 billion at the national level goes to salaries.

In counties, 67 per cent of recurrent expenditure or Sh166 billion goes to salaries.

“The amount going to salaries is significant and must be reviewed if development is to be realised,” she said recently. The National Treasury allocated Sh210 billion to counties in the current financial year. According to the Controller of Budget, Sh10.72 billion went to paying salaries in the first quarter.

Civil servants

Now, the Parliamentary Budget Office warns that failure to manage increases in the county public wage bill could in the coming years cripple the economy that is currently in a recovery mode.

Not only will the Government be starved off money to spend on infrastructure and other development projects as it struggles to pay salaries, but the growing disposable income among the civil servants is likely to fuel a rise in the cost of living.

“As a way of containing expenses, the Ministry of Devolution and Planning was directed to freeze new recruitment, suspend adjustment of salaries and allowances and reclassification and creation of new State Corporations,” a statement from State House said last week after Cabinet arrived at the decision.

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