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Friday, 14 June 2013

A Public Spending Mess

The current Medium Term Expenditure Framework 2013-15 has a rather interesting line: “Personal emoluments in the medium term, as a share of GDP, are projected to decline from 9.1 percent in 2013 to 8.8 percent in 2015. The spending pattern on personal emolument is consistent with Government’s strategy to contain the wage bill within sustainable levels and ensure sufficient fiscal space for developmental programmes” (Source: MTEF 2013-15).

Someone forgot about this line because in March 2013 there was a bumper pay rise for civil servants with some (not all) getting as high as 200 percent effective September 1, 2013. Leonard Hikaumba, president of the Zambia Congress of Trade Unions, revealed then that on average most workers will get increases of 40 percent to 50 percent.

So how big is this pay rise? Essentially it will mean all the fuel subsidy savings have gone on wages. That is where the money has gone. And it will continue going there for good since wages are paid monthly. The new wage increases pushes the spending burden on civil servants at more than 60% of government revenues. Others estimate this more than 70%. The point is that this is quite staggering! We are back to square one I am afraid unless Government reneges on its deals with civil servants! May be someone should tell our rural dwellers than their fuel money has gone on civil servants??

For many years I have warned about wasteful spending and the rising public sector wage burden. Perhaps, I was encouraged by reading reports such as the one drafted by the World Bank in 2011 which warned us that “the relatively high and increasing wage bill—which is rising both in absolute terms and as a proportion of domestic revenues—remains a concern over the medium term. Wages and salaries are equal to slightly more than 50 percent of domestic revenues, substantially offsetting the increased fiscal space generated by the HIPC and MDRI debt reduction programs” (Source : World Bank, 2011).

That was before PF took over. The wage bill had already been rising under the Banda administration. But now it is even much worse. The new mind boggling salary increases, districts and provinces means that the share of Government revenues being spent on public sector pay is at an historical high. At 60% - 70%  it is way too large! Indeed, a point can reasonably be made that the practical reason we had to remove these subsidies (the efficiency arguments aside) was that we couldn’t borrow again in time just to pay people! We have to borrow to fund infrastructure spending because more than half of the taxpayer money goes on people through many countless boards, government takeovers, large diplomatic postings, countless new districts and other new areas of public waste.

Unfortunately no one seems to be talking about this unwelcome spectacle. The current government is not being held sufficiently to account. But truth must be told. The current situation is not sustainable and means the fuel subsidy money is already spent. Not on bye-elections as some poorly suggest (the bye-elections are small money), but public sector wages and the new bloated bureaucracy.  

The fundamental problem is that our politicians (in opposition and government) have very little incentive to sort these issues out. The bigger the size of the public sector relative to the population, the more unlikely that any political party will want to discuss the issue. No one wants to preach having a narrower and more effective government because in the short term it may mean poor wages and fewer people employed. “Elect me and I’ll cut your wages” is not a winning slogan! 

However it is important that people see the bigger picture. Clearly spending  60% - 70% of government revenues on wages is not sustainable in the long term. Government workers deserve a decent wage, but taking money from our poorest people (which is what the fuel subsidy removal partly does) and then giving it to workers is more wrong and in fact retrogressive from an economic standpoint. More worryingly as a nation we are not placing sufficient importance on the question of whether the current size of the public service sector is 'optimal'. Good leaders lead the public, and there's plenty of leading needed in this area.

Of course none of this means that the decision to remove the fuel subsidies was wrong. The decision was correct for the many reasons I have set out before. What is incorrect is having a large, expensive and bloated civil service. It is vital that Zambians now press Government to cut down on spending substantially starting with the reversal of this deal they have reached with the public sector. Zambia cannot afford the rampant wage rises.  The right response is not not to oppose the removal of subsidies but to exposing the truth which is : the savings which can be spent on our poor are being loaded on the backs of civil servants. It is time to put a halt to it!

Copyright © Zambian Economist 2013

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