The national and county governments spent Sh316.8 billion on pay and perks between June last year and March this year, spending that has been crowding out resources that would have funded development projects.
In its third quarter wage bulletin for the period June to March 2023 released yesterday, the Salaries and Remuneration Commission (SRC) reveals that county governments spent Sh126.02 billion to pay their employees, whereas the national government forked out another Sh190.82 during the same purpose.
In the second quarter, the two levels of governments’ expenditure on their employees stood at Sh90.4 billion and Sh127.21 billion respectively, an indication of the significant growth in personal emoluments in the third quarter.
“The expenditure on personnel emoluments in county governments, as a share of the total expenditure in the majority of counties, has remained above the Public Finance Management (PFM) threshold,” said Lyn Mengich, the SRC chairperson. “This continues to crowd out the available resources for development projects at the national and county level.”
In recent years, the public sector wage bill has been on rising steadily as a result of the expansion of services to achieve development goals; a push for higher pay by public service employees and low productivity that leads to slow growth of revenue and the general economy.
Mengich’s warning comes amidst the expected increment of civil servants’ salaries, after the National Treasury allocated them Sh17.7 billion in the financial year beginning July. Once this kicks in, the higher spending on emoluments is expected to worsen the country’s wage bill crisis. Over 900,000 civil servants want a review of their salary to compensate for tougher economic times that have seen inflation hold steady at 9.2 per cent as at March.
They are also expecting higher deductions if MPs vote for the Finance Bill next month and the three per cent deduction for the housing levy kicks in. NHIF and NSSF deductions are also set to go up, further eroding government workers’ take home pay.
During the quarter in review, Mengich said SRC received 65 requests for review of emoluments from public institutions, out of which 80 per cent were for allowances and benefits. These were followed by collective bargaining agreements at nine per cent, salary reviews at eight per cent and three per cent for productivity and performance.
“SRC approved requests worth Sh411,431,754, against the 65 requests from public institutions amounting to Sh3.2 billion. Through this intervention, SRC saved taxpayers Sh2.8 billion, equivalent to 12.7 per cent of the total requests,” she said.
The country’s wage bill to nominal Gross Domestic Product (GDP) has been steadily rising since the 2016/17 financial year. It has grown from a ratio of 7.91 per cent that year to 8.25 per cent in 2020/21. However, it is expected to drop to 7.73 per cent in the current financial year, which ends next month.
As a rule, a disproportionate rise in the wage bill to GDP negatively affects sectors like agriculture, manufacturing and tourism that spur economic growth and create employment and wealth.
“This ratio is projected to decrease towards 7.5 per cent in line with the average for developing countries, and approximately seven per cent, which is the internationally desirable level,” Mengich said.
The wage bill to ordinary revenue ratio stood at 56 per cent in 2020/2021, and was projected to reduce slightly to 51.77 per cent in FY 2021/2022. The wage bill to total revenue ratio was 44 per cent in 2020/2021, and was projected to increase to 46.26 per cent in the current financial year.
“This implies that the ratio is projected to remain above 40 per cent in FY 2021/2022, significantly above 35 per cent, which is the recommended ratio as per Public Finance Management Act, 2012, and Public Finance Regulations, 2015,” Mengich said.
However, the wage bill to recurrent expenditure ratio is projected to reduce marginally from 36.89 per cent in the last financial year to 36.62 per cent in the current one.
Kenya’s real GDP expanded by 4.8 per cent last year, compared to a revised growth of 7.6 per cent in 2021, with growth spread across all sectors of the economy, though more pronounced in service-oriented activities. This year, the economy is expected to grow by 6.1 per cent and to maintain that momentum over the medium term.
A review of the Economic Survey 2023 reveals that Kenya’s total workforce stands at 12 million. Out of this, two million work in the formal sector, which includes the civil service, parastatals and private sector. All the others are employed in the informal sector and this presents various challenges to the government, including adding them into the tax bracket and getting them to contribute to funds like NHIF and NSSF.
The current Economic Survey shows that wage employment in the public service registered a 1.6 per cent growth last year, compared to 4.4 per cent recorded in 2021. The Teachers Service Commission — the largest employer in the public service — registered a reduction of 0.3 per cent in employment in 2022. However, county governments registered a growth of 4.4 per cent in the review period, with their workforce rising to 217,300 people.
Given the hiring trends in recent weeks, including the appointment of 50 Cabinet Assistant Secretaries, the number of new State and public employees is expected to grow compared to the period under review. This, if the trend in the report by SRC is anything to go by, is set to further eat into money meant for development spending given also that there are several loan repayments that will be maturing in coming months.
Employment in corporations controlled by the government and parastatal bodies grew by 1.1 per cent each in 2022, while employment in ministries and other extra-budgetary institutions registered an increase of 2.4 per cent. This was, however, a decelerated growth compared to 7.1 per cent recorded in 2021.
According to the Economic Survey, the number of public service employees rose from 774,700 in 2015/2016 to 923,100 in 2020/2021. On average, the public service labour force grew by 4.34 per cent as at 2020/2021, and is projected to grow by the same rate to 963,200 employees in the current financial year ending June.
With the growth in spending on emoluments, the trends can only point to a further slowing down of development expenditure at a time when the public feels it is paying too much tax but not getting commensurate services from government agencies.