IMF urges sharper measures to cut wage bill
Brian Benza | Tuesday July 15, 2014 12:28
Despite a 2011 resolution to cut the public service wage bill by five percent annually, the amount that government spends on salaries has continued to rise over the years.
Statistics show that despite a modest 3.6 percent increase in total employment to 131,033 public servants from 2010 to 2013, the actual wage bill rose by 57 percent to P14.55 billion in the period.
In a statement released this week following recent consultations with local monetary and fiscal authorities, the IMF urged the government to articulate a clearer set of measures to reduce the wage bill relative to GDP.
“Despite the modest wage awards in recent years and the de facto hiring freeze, the wage bill continues to be high reflecting the impact of promotions, non-wage allowances and overtime, said the IMF.
While public servants have not been awarded a significant salary adjustment in the past five years, it appears the ballooning of the wage bill has been a direct result of higher notching as individual employees move up the salary scale.
The average personal emoluments paid to public sector employees rose from P6,094 per month in 2010 to P9,253 per month in 2013, an increase of 52 percent.
According to a 2014 first quarter economic report by consulting firm, Econsult, the level of government spending of wages relative to GDP is not sustainable and is higher than most high middle income.
“Concerns about the level of spending on the government wage bill have been driven by an ever increasing share of government spending and GDP devoted to salaries. This is unsustainable. Once pension contributions are taken into account nearly 15 percent of GDP was devoted to public sector salary costs in 2012/13, compared to a norm for a middle-income country of less than 10% of GDP. Mauritius sits at 6 percent,” read the report.
The Econsult report also echoed the sentiments expressed by the IMF suggesting that a new approach is required to cut down the wage bill.
“With the wage freeze, government has managed to annoy its workforce and the unions, leading to poor labour relations and reduced productivity, without achieving the objective of saving money. A re-think is clearly needed on how to achieve a longer term objective ofdownsizing the government salary bill,” said Econsult.
Turning to the overall economy, the IMF projects Botswana’s real GDP growth to slow down from 5.9 percent in 2013 to 4.4 percent in 2014 and subsequently stabilise at around 4 percent over the medium-term.
The growth slowdown in 2014 is owing to the slowdown in diamond recovery and continued problems in the electricity and water supply, which has affected the non-mineral sector.
The main near-term risks relate to the uncertain external environment, such as the potential slowdown in emerging markets, which poses downside risks to mineral export demand. On the domestic front, the IMF says the ongoing problems with power supply and continued high though decelerating growth in household borrowing are potential sources of vulnerabilities.