High-ceilinged wage bill will cripple Kenya

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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.

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  • viru5Detected

    Please spare us! The wage bill doesn’t seem to be a problem when politicians are demanding unnecessary perks and allowances. The county budgets with governors chest thumping to build houses and drive cars “as befitting their status” doesn’t seem to be a problem to the Jubilee govt.
    What about the 100 million renovation of what is practically a brand new DP’s residence. Don’t preach to us about wastefulness when you’re the one leading the pack

    • Carey

      well stated

  • We haven’t anything from the likes of Greece, Argentina and Cyprus. Kenya is fast living beyond its means. It is imperative for Kenya to cut unnecessary spending or else we are headed to being another morality tale to the world. Kenya roughly sums up the political problems throughout the world, greed and theft. Refusal to live within their means usually ends up only in one place….Who was it who said history repeats itself ?

  • Gabby

    …….First of all…..inflation…..Secondly,….higher imports, and reduced competitiveness….. Couldn’t have said it better myself BUT Mr DP, one great enemy of economic growth is CORRUPTION and LAX ENFORCEMENT of EXISTING LAWS that perpetuate the two points you cite above in grievous ways than can be summed here on this blog and nips the life out of the many innocent poverty-stricken folks especially those who go into their early morning business in the rural areas with meagre returns to show for! It is also time for CLEAR CUT anti-importation spending especially in things that can be manufactured here and a wise eye on the new mineral wealth. A simple thing of displaying the directors of companies in ‘partnership’ with prospecting conglomerates can go a long way. It’s time for a whirlwind tour of the country to explain in economic laymen terms to the populace the very things you have written and more, rounded off by economic meetings with key industry players in the capital here in Nairobi. That is the crux of the matter!

  • Kwessi Pratt

    When traces of wastefulness are seemingly associated with you, your Excellency, and with no corresponding income, the spirit of your well founded argument disappears. And thats where the catch is. Can government spend wisely before crying? When jubilee came to power, we thought we had entered new territory of massive income generating enterprises! May be the bravado was after all not accompanied by well planned systematic attempts to industrialize the country?

  • Carey

    I like the academic piece you penned,reality is this just cheap talk..the political class can have their cake and eat it while the rest are given false promises in the name of legal notices….if this was such a serious issue it should have been addressed in the first 100 days by the political class leading by example by cutting their wages,but wait more money is waited in endless bench marking trips,sessions in hotels and lodges……tell us how much has been budgeted for travel and accommodation expenses!

  • Carey

    when you tax us at 30%,how does this spur economic growth….if you waived tax on income below 50,000….people will have more disposable income,increase spending…this will spur production creating more jobs…this is economics 101;Also consider making payments every 14 days and see the spiral effect

  • Carey

    Give us specifics on cost cutting and by when

  • Duncan Muchina

    You said it your Excellency…stay on top of wage bill management. It’s your’s and HE Uhuru’s legacy at stake. You are the dynamic duo! We believe in you to deliver and spur the country to greater heights. May God be with you.

    • True Kenyan

      eti dynamic duo..save me the BS

  • nyakundi

    What you say Mr. Ruto is true,all you’re saying would have been avoided if the MP’s never asked for an increase in their salaries. Now that they did, Kenyans who are earning low salaries like teachers and civil servants will want their salaries increased. Then some sectors will also ask for their salaries to be increased. The solution even for future governments is finding away of taming MP’s hunger for higher wages. If you do that at list some aspects of the wage cycle will be reduced, giving the government ample space to grow the economy. The MP’s since 2002 have always triggered the cycle by asking for higher wages. Find a way of taming them,and the cycle will be cut down!

  • Anonymous

    Nice school of thought,but alas,Your Excellency,you helped in negotiating for an increase to the MPs salaries. Their salaries are just astronomical and insulting to someone like me trying to make a living with way much less.Add to that the wasteful spending by government officials and the problem seems to be lying with the political class and not the civil servants.Politicians will run down this country.

  • Nyangwes

    It is a fact that the very definition of if you want to spell waste, its “Government”. It is the text book definition. For government, it is not even the big ticket items. It is the fresh flowers everyday, that no one even glances at, and actually makes allergies worse. It is buying all the three daily newspapers for all rank and file. It is the “support staff” that ‘waheshimiwa’ seem unable to function without, and most of whom somehow have a connection with the office bearer. In Kenya we have a new money making scheme called “Commissions”. It is people doing the work that government ought to be doing, or at least pretending to do so. Like the CIC, trying to be the National Assembly and AG’s office combined, and yet these offices have office bearers. It is the Commission on Land, another on Reconciliation, another on Nation Building, 150 people now refer to themselves as Commissioners, and all these take out full page adverts looking for “Pre-Qualification of Suppliers” more fresh flowers, and milk, and furniture.

    It is the “refurbishment” of already plush living and work places. Russia has just banned the building and refurbishment of any official offices or residences for 5 years to cut spending. How about we borrow that leaf from the Moscow Book?

    The Huge wage bill is a scapegoat. There is enough waste in government, and that is why, beginning with the “people’s servants”, ie, our elected officials, they feel the need like the Israelites of yore, to take a basket and go collect as much manna as they can. Talk is cheap. If the government REALLY wants to curb waste, start by replacing all fresh flowers with plastic ones, and use the radio to make public announcements instead of taking paid out ads in the newspapers…..afterall, not that many of us afford to buy them anyway.

  • Blame it on the MPs increased pay that you helped negotiate. Teachers deserve a better pay and so are doctors/nurses and the Police.

  • viru5Detected

    Says the man who negotiated higher salaries for an already overpaid legislature and chartered one of the most expensive private jets at taxpayers’ expense. Spare us the BS

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