The public wage bill in Kenya has been growing within an environment of revenue and financial constraints, consuming a significant portion of the national budget, thus putting pressure on development and investment share of our fiscal budget. A fiscally sustainable public wage bill is an enabler to achieving the desired outcome in economic development and public services delivery.
On the contrary, high level of public wage bill leads to:
- Crowding out resources that could have been used for development priorities and enhanced social services;
- Loss of competitiveness of the economy;
- Fiscal deficits; and
- Negative impact on economic growth and employment.
The public wage bill is a factor of both the quantum, as set by SRC, and the total number of employees in the public service. While SRC has a direct role in influencing the quantum, it has limited influence on the number of employees. In this regard, the current wage bill does not match economic and revenue growth.
However, there exists a huge potential of optimising and enhancing the productivity of the public service through enhanced governance, operational efficiency, and accountability for results. Implementation of productivity improvement programmes and attendant reward and financial incentive schemes will spur performance, thus, lead to better financial results and a favourable wage bill to revenue ratio.
The public service wage bill affordability and sustainability ratios is as shown in Table 1 below:
Table 1: Public wage bill, nominal GDP, ordinary revenue, recurrent expenditure and employment trends and ratios
Source: The Economic Survey 2020, 2021, 2022 and 2023; Budget Policy Statements 2016–2023 *Means estimate +means projection
Wage Bill to Revenue Ratio as per PFM Regulation
The PFM Act, 2012, and PFM Regulations, 2015, stipulate that a public institution should not spend more than 35 per cent of its total revenue on personal emoluments (PE) and benefits. The ratio is calculated using the formulae shown below.
From Table 1, it is observed that public service wage bill, in absolute terms, hit a trillion shillings mark in the year 2022. Further, the ratio of wage bill to total ordinary revenue in Kenya was estimated at 43.54 per cent in FY 2022/2023. This is far above the target of 35 per cent stipulated in the PFM Regulations, 2015, and threatens the country’s fiscal health and future development.
The public wage bill is a factor of both the quantum, as set by SRC and payable in the public service, and the total number of employees in the payroll of the public service. While SRC has a direct role in influencing the quantum, it has had little influence on the number of employees.
Public service productivity
Productivity is the process of converting resources (inputs) into products and services (outputs) efficiently, effectively and with optimum utilisation of human, capital, and physical resources for the benefit of society, the economy, and the environment. In the face of recurrent budget austerity measures and rising citizen expectations on service delivery, there is need for the public service workforce to deliver more with less funding.
Productivity growth reflects a country’s ability to produce more output with less resources by better combining inputs on the basis of new ideas, technological innovations, and progressive business models. Monitoring and improving public service productivity is a strategic intervention for the achievement of the PFM Act target of 35 per cent wage bill to ordinary revenue ratio and thus, making available, more resources for development.
However, there are challenges in public service productivity. They include; lack of a comprehensive productivity agenda in the public service, weak coordinating mechanism of multiple actors on productivity improvement, rewards not properly linked to measurable productivity and performance, inadequate capacity around productivity measurement including computation of productivity indices and development of metrics for tracking and improving productivity, weak productivity policy and legislative framework and poor productivity culture in the public service.
The conference will provide an opportunity to discuss and develop purposeful actions towards enhancing the role of productivity in fiscal sustainability of the wage bill.
[1] Public wage bill is defined as the total remuneration and benefits paid to public employees by the public employing institutions for work performed.
[2] Total ordinary revenue is the summation of revenues classified as Taxes on income, profits, and capital gains; Value Added Tax (VAT); Taxes on other goods and services; Taxes on international trade transactions and other non-tax revenues as collected by KRA.