Soaring wage bill will cripple Kenya ~ By WILLIAM RUTO

Soaring wage bill will cripple Kenya ~ By WILLIAM RUTO

As Kenya heaves a sigh of relief at the conclusion of the wasteful, disruptive and ill-timed teachers’ strike, I find it necessary to contribute to the debate over public sector wage expectations and the general macro-economic and fiscal circumstances affecting it.

The whole point of the Jubilee Coalition’s raft of undertakings is to grow the economy as the foundation of national happiness. Indeed, economic growth is the imperative of all sensible governments.

There is an excellent macro-economic justification to rationalise the national public sector wage bill. The Constitution requires us to have a wage-setting mechanism which links remuneration to fiscal sustainability while ensuring that public service continues to attract and retain skilled staff. The mechanism must also ensure that there is transparency and fairness in setting wages.

The constitutional principles guiding public service remuneration are informed by sound economic considerations.

First of all, a high wage bill can undermine economic growth and job creation by causing high aggregate demand, which results in inflation.

Secondly, increased demand leads to higher imports, and reduced competitiveness. These dire economic straits will attract an undesirable outcome: higher interest rates.

In short, a higher wage bill is a perfect recipe for economic implosion on a macro-economic scale.

At a fiscal level, higher wages necessarily require increased borrowing to plug deficits, raising interests rates and lowering investments and growth.

Moreover, it will lead inevitably to a reduction of expenditure in vital social areas like education and health which, in turn, raise their own impacts of growth, productivity and human welfare.

Clearly, therefore, managing the wage bill at sustainable levels is key to unlocking national resources for purposes of development expenditure, improving service delivery and overall economic growth.

On the other hand, we can forget Vision 2030, attainment of middle-income status and double-digit economic growth if we don’t contain the wage bill.
Currently, the public sector wage bill is Sh458.7 billion, projected to reach Sh548.8 billion if suggested recommendations as well as other sub-sectoral demands are incorporated. As a percentage of the GDP, the wage bill stands at 12.2 per cent, of which 7.8 per cent represents the civil service wage, projected to rise to 14.6 per cent, with the civil service taking 9.3 per cent.

To put these figures into perspective, levels for middle-income economies average 8.5 per cent, whilst low income countries require levels of 7 per cent to unlock economic growth. Currently, Africa trends at 9.5 per cent.

To further bring the point home, the Public Finance Management Act, 2012, requires a provision of 30 per cent of the total national budget for development expenditure. Currently, recurrent budget gobbles up 74 per cent, leaving 26 per cent for development.

The proposed wage bill would push recurrent expenditure to 79 per cent. This leaves only 21 per cent for development which contravenes the law. Equally it is incompatible with the national economic development roadmap.

A huge wage bill will lead to a surge in recurrent spending with a commensurate plunge in development spending, reversing a trend that had been sustained between 2006 and 2011.

It is clear that we are in the throes of a colossal wage bill crisis and our development priorities are threatened. We cannot stay the course if we are not on top of wage bill management.

Government services will be radically scaled back if we resolve to indulge all wage expectations of public service employees.

The Jubilee Coalition intends to deliver in full. It therefore follows that it is committed to managing the wage bill astutely and with prudence.

William Ruto is the Deputy President.