Implementing new measures to reduce the public sector wage bill

As it is in so many other emerging markets, one of the main priorities for Kenya’s government is to tackle its large public sector wage bill. The public sector employs 681,000 people, which is roughly 32% of Kenya’s formal sector workforce of 2.1m, according to the Kenya National Bureau of Statistics.

The associated payroll totalled 7.8% of GDP in 2012/13, as per IMF figures, and often requires redirecting resources away from infrastructure and other programmes that would help to foster economic development. The government has rolled out a number of initiatives to address this, including payroll audits, hiring freezes and reorganisation of the bureaucracy. This is likely to be further exacerbated in the short term by Kenya’s devolution process, in which some state powers have been transferred to 47 counties, leading to the creation of new government bodies in those localities. Although some existing public sector employees have migrated to those newly formed bodies, there is concern about overlap.

Target Ceiling

The government has set up the Salaries and Remuneration Commission (SRC) to study the issue and oversee a transition to a harmonised salary scales framework, setting the target ceiling for government wages at 7% of GDP. While the current level is less than one percentage point higher, it also represents about 50% of tax income. A minimum wage increase of 14% in May 2013 was among the reasons for a supplemental 2013/14 budget announced in late November to cover additional expenses.

Addressing the public wage bill has prompted action on several fronts beyond ensuring a lack of duplication across the national and local levels of government, however. Among the headline changes has been a reorganisation at the Cabinet level, with the government consolidating the number of ministerial portfolios from 44 to 18 in April 2013. Similarly, as of April 2014 the counties have been directed to halt recruiting while the national government finishes taking stock of existing staffing levels across the board.

Conducting more regular audits is also a focal point. In January 2014 President Uhuru Kenyatta said the country could be spending as much as KSh1.8bn ($20.5m) annually on “ghost employees” – salaries that are officially still being paid to people who had quit, retired or died. In March 2014 the president also announced in a symbolic gesture that he and Deputy President William Ruto had accepted a 20% reduction in their pay, and that ministers would see a 10% cut.

Single Structure

ccording to findings from the Kenya Institute for Public Policy Research and Analysis (KIPPRA), which published a report in 2013, public sector wages are on average higher than those in the private sector by roughly KSh7032 ($80) per month. KIPPRA’s report was commissioned by the SRC, and it recommended that the agency’s reforms include international benchmarking. It suggested the establishment of a transparent system with a clear structure to determine pay levels.

“The wage structure should contain basic pay, which reflects the value of the job; productivity-based pay (bonus), which acts as a variable payment to compensate for productivity (performance); and a seniority element to compensate for long service, loyalty and experience,” the KIPPRA report recommended. The SRC is expected to continue driving the issue going forward, as its responsibilities include setting the salaries of both elected and appointed civil servants, as well as providing advice to the government on the topic and developing a single salary scale for both state and county government workers.

While the SRC plans to address those deficiencies in the current approach, another body is now focused on assessing the situation at the sub-sovereign level. The Transition Authority, which was created at the national level to coordinate the process of transferring powers to the new country governments, began the task in April 2014 by surveying the 47 new counties. A major goal will be to avoid the development of ghost employees early, and hiring is on hold for now.