Inside Ruto's ambitious scheme to contain runaway wage bill by 2027

President William Ruto and SRC Chairperson Lynn Mengich Chairperson during the official closing of the Wage Bill Conference at the Bomas of Kenya. [PCS] President William Ruto is confident that the public sector wage bill can reduce to 35 per cent by 2027, a year sooner than was agreed at the recently concluded Third Wage Bill Conference. But this will be an enormous task as past governments have struggled to keep this ratio down. If he cracks it, this could be one of his most notable achievements. It is not the first time these figures are being agreed on. The Public Finance Management Regulations (2015) envisaged achievement of a wage bill of not more than 35 per cent of revenue, and a wage bill to GDP of not more than 7.5 per cent from a longstanding estimate of 7.9 per cent in line with the average for developing countries. Public sector wage bill comprises wages and salaries, allowances and other benefits awarded to all public sector employees as compensation for services delivered, according to the Salaries and Remuneration Commission (SRC). It has been oscillating in the region just above 40 per cent, but has largely failed to come down to the figures SRC projected in 2020. Of the last eight years to 2022, the public wage bill to total revenue ratio was highest in the 2020/2021 financial year (FY) at 45.9 per cent, wrote SRC. It declined to 39.56 per cent in FY 2021/2022, and was projected to reduce further to 34.6 per cent in FY 2022/2023, and 32.15 per cent in FY 2023/2024. These projections were not realised, however. Now, the plan is to lower it from the current 43 per cent of total revenue to 35 per cent, and President Ruto hopes that by the start of his potential second term, he shall have achieved what his predecessors failed. A high wage bill is fiscally unsustainable as it contributes to the crowding out of resources that could be used for development priorities and enhanced social services, says the SRC, and leads to the loss of competitiveness of the economy. It contributes to fiscal deficits and leads to negative impact on economic growth and employment. And in Kenya, this public sector wage bill has been growing gradually, averaging a rate of 7.2 per cent over the last five years to 2022. In the 2010s, Kenya's total public wage bill to ordinary revenue averaged approximately 50 per cent, having spiked during the 2012/2013 financial year, mainly due to expansion of government following the promulgation of the 2010 Constitution, SRC noted. "By the close of the financial year 2018/2019, the wage bill was estimated at Sh795 billion. This was 48.1 per cent of the ordinary revenue and 7.9 per cent of the GDP," it said. Kenya was, thus, veering off the desired road, with the international best practice showing that developing countries should spend approximately 7.5 per cent of GDP on wage bills. Reducing the amounts paid to public servants- among other interventions to slash the bill- will ultimately leave more for development, economists say, and will discourage consumption driven and encourage investment driven economic growth. But will Dr Ruto go for a reduction of salaries, which could cause great uproar among the civil servants, to bring down this ratio? X N Iraki, a Professor at The University of Nairobi's Faculty of Business and Management Sciences, thinks that the country's leadership could be hesitant to put their foot down because of political credit. "The problem is that you have to retrench or sack public sector workers. It's politically very risky. Political power partly stems from hiring, not firing. I guess it will be a hot potato awaiting the next president, just like public debt," he says. In various proclamations, Dr Ruto has declared an intention to run an austere government, with insistence on closing loopholes for theft. However, as the auditor general questions expenditures in both counties and national government, it has emerged that there has been considerable wastefulness, including inflated bills and claims of payment of salaries to ghost workers. The president has, himself, come under scrutiny over his travel budgets, and the creation of offices for spouses of top leadership has been widely criticized as wasteful. There have also been widespread cases of creation of illegal offices and payment of salaries for the same, such as the positions of Chief Administrative Secretaries (CAS). All these have led to a ballooning of the country's wage bill. Reacting to this, the president tasked relevant agencies to aggressively pursue public servants who are non-compliant, including to pursue civil servants who are in office using fabricated qualifications. The Public Finance Management Regulations (2015) guided that national and county governments should not spend more than 35 per cent of their total revenue on personnel emoluments. "A public sector characterised by high efficiency, integrity, accountability and productivity is vital for the realisation of our development aspirations and therefore indispensable for the Bottom-Up Economic Transformation Agenda," said Ruto during the Third Wage Bill Conference. "It is also essential for our intentions to make Kenya Africa's productivity champion and the host of the African Productivity Centre." Dr Ruto faulted the recruitment in various State departments while insisting the government has been reluctant in hiring thus containing the wage bill. "Even though our public sector wage bill is unsustainable as it stands at Sh1.1 trillion, it represents only 62 per cent of the authorised establishment in the national government, and a 100 per cent recruitment would drive the wage bill to Sh1.8 trillion. "The composition of the establishment itself is problematic in that it is seriously skewed towards hiring support staff at the expense of technical and other core functions. Clearly, 83 per cent of State departments have violated the recommended ratio of technical staff to support services," he said. While tinkering with these figures amid great disenfranchisement, former President Uhuru Kenyatta promised to increase the minimum wage bill by 12 per cent during Labour Day 2022, his last in office. In another move, the National Treasury announced its intention, in a supplementary budget to Parliament, to slash Mr Kenyatta's monthly pay by 11.6 per cent and his deputy's, Dr Ruto, by the same percentage. And in an earlier move, the president had ordered a 20 per cent pay cut for all parastatal heads. All these were in a bid to manage the runaway wage bill. But before Mr Kenyatta, the Grand Coalition government of President Mwai Kibaki and Prime Minister Raila Odinga had been accused of ballooning the wage bill, leaving the country in a precarious situation. Heading up to 2013, in the years they ran a joint government, the two oversaw a doubled wage bill, from Sh240.5 billion in 2008/09 to Sh458 billion in 2012/2013. The two were accused of aggressively pushing for the appointment of their kin and friends, with a Cabinet growing dramatically and their salaries rising as well. But the figures seem to have been tempered over time, gradually. Mentoria Economics' Chief Economist Ken Gichinga is confident the president could, with the right plans, achieve his target by 2028, revised down to 2027 by Dr Ruto himself. "It is possible (to get to 35 per cent), but there has to be an attempt to rebalance the economy by creating jobs in the private sector. If civil servant jobs are reduced and there is no counterbalance in creating jobs in the private sector, a major economic slowdown can be triggered," he says. "The reason the (implementation of the) 2015 PFM regulations is slow has largely been due to the political economy that comes with ensuring strategic roles remain within the public sector, even though they can be more efficiently done in the private sector," he says. And as different public servants lobby for increased pay citing the high cost of living, and yet-to-be-honoured past agreements, the lingering fear of increase in salaries, which bloats the wage bill, is that the resultant increase in government expenditure will lead to increased borrowing, which will then increase interest rates and crowd out the private sector from credit. Dr Ruto insisted on the need for collaborative efforts towards the cause, saying that the national government has taken the lead. "There is work to be done to ensure that the public sector wage bill meets the constitutional threshold," he said, calling the need to engage on strategies and action plans towards actualization of the same "urgent". The wage bill to ordinary revenue ratio could still be in the 40s, above SRC's projection of 40.45 per cent, in FY 2023/2024. This figure had declined from 54.77 per cent in FY 2020/2021 to 47.06 per cent in FY 2021/2022, and was projected to reduce further to 43.54 per cent in FY 2022/2023. It is expected that many public servants will be asking for increased wages, and the government will have a complicated route towards managing the wage bill. At the same time, the government will be keen on the much-promised frugality, while also authoritatively dealing with individuals in public service benefitting from corruption proceeds. Between now and 2028, the country will also battle to have a wage bill to GDP of not more than 7.5 per cent from the currently estimated 7.9 per cent in line with the average for developing countries.

Inside Ruto's ambitious scheme to contain runaway wage bill by 2027

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