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IMF deal that froze Kenyan government workers Sh82bn wage increase

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Economy

IMF deal that froze Kenyan government workers Sh82bn wage increase


Wage and Compensation Commission (SRC) chair Lyn Mengich on June 17, 2021 at the Hilton Hotel when she announced that there will be no salary review in the public sector for the next two financial years. PHOTO | DIANA NGILA | NMG

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  • The Treasury promised the IMF that it will keep civil servants’ salaries unchanged until 2025 as part of the Sh252bn loan deal.

Kenya has frozen salary increases of 82 billion shillings for all civil servants for two years, starting in July following an agreement agreed with the International Monetary Fund (IMF) to keep the salary unchanged until 2025.

The Wage and Compensation Commission (SRC) unveiled the freeze on Thursday, highlighting the severity of the country’s rapidly deteriorating cash flow situation that is marked by near-stagnant revenues and worsening debt service obligations.

The Commission said the decision to suspend the implementation of the third salary review cycle was made due to difficult economic times caused by the Covid-19 pandemic.

It comes months after the IMF revealed that the state had pledged to keep civil service pay unchanged for four years after the Fund’s board approved a new $ 2.34 billion loan to Kenya.

Under the IMF deal, Kenya agreed to freeze pay until June 2025, curb hiring and work to eliminate ghost workers, including staff who have died, retired or left the service.

The hiring and non-essential wage freeze sets the stage for tough times ahead as costs for basic items like fuel, rent and food continue to rise.

Curb the advantages

Civil servants last got a pay raise in 2017 and have used hefty allowances to increase their take-home pay, but the pay agency has also announced plans to curb the perks.

The SRC has accused government officials of multiplying the number of allocations from just 11 in 1999 to 247.

“The National Treasury informed the commission that due to the effects of Covid-19 on revenue performance and the expected slow economic recovery, it should consider postponing the review for the next two fiscal years until the economy improves,” Lyn said. Mengich, president of SRC. he said at a news conference Thursday.

This echoes the note published by the IMF in March, which indicates the Treasury’s commitment to reduce the ratio of the government’s wage bill to GDP by about 0.5 percentage points by June 2024.

“This will be achieved through continued restraint in hiring and wage awards, including the four-year wage agreement that will take effect in fiscal year 2021/22, and through better management of the wage bill,” the IMF revealed.

Kenya has struggled to cut a huge wage bill that is affecting development spending. The wage freeze is expected to help control public sector wages to free up cash for projects like road construction that ultimately create jobs.

Kenya’s public service wage bill is slightly above 50 percent of the government’s annual tax revenue. The IMF places the global benchmark at around 35 percent.

The IMF is expected to play a role in formulating policies that would require the government to implement difficult conditions in many sectors.

Public purse

His series of policy caveats stems from his servicing of billions of shillings to Kenya, where the money flows directly into the budget to top up the public purse.

Under former President Mwai Kibaki, Kenya stayed away from this type of credit, with most of the support from institutions like the IMF and the World Bank in the form of project support.

Kenya has recently faced a deteriorating cash flow situation that has been addressed by the economic difficulties of Covid-19.

Dare to check in

SRC data shows that the wage bill has grown from Sh615 billion in the year to June 2016 to Sh827 billion last year, thanks to the juicy perks.

The 247 allowances represent 48 percent of the total wage bill.

The commission said that if the Treasury’s revenue targets are met in the next financial year, the freezing of wage increases will have the effect of reducing the burden of the public wage bill on Kenya’s income from 51.7 percent to 48 percent. percent.

More emphasis was placed on allowances starting in 2015, as the government saw it as an alternative to control its pension bill by not increasing wages.

The state think tank Kenya Public Policy Research and Analysis Institute (Kippra) said the allowances paid to civil servants have made the government the employer of choice and called for a radical overhaul.

Currently, allowances have the effect of doubling an employee’s salary and, in some cases, increasing it by a factor of 10.

Kippra recommends limiting allowances to about 25 percent of the gross salary of civil servants, while the SRC favors 40 percent.

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