The wage bill is only 0.5% of the problem

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  • 5 years ago
  • Posted: March 12, 2014 at 12:13 pm

Since the announcement by President Kenyatta during the Cabinet retreat that he and his deputy will take  a pay cut of 20% and all the Cabinet Secretaries and Principle Secretaries will take a pay cut of 10%; and the subsequent demand by His Excellency that all head of parastatals take a 20% pay cut or quit, the country has been immersed in the wage bill debate. During the opening of  the public  sector wage bill debate, a number of statistics were put forth to let Kenyans know how grievous the runaway public sector wage bill has become.

Important statistics include the fact that at over Shs 458 billion, the public sector wage bill has reached 50% of our revenue and accounts for over 12% of our GDP. The long term target is to lower the public wage bill to 35% of revenue and utmost 8% of GDP. Calculating the two, at the current GDP and Revenue rates, the intention by the Government is to reduce the wage bill to about Shs 320 billion annually hence saving Shs 138 billion. The salary cuts alone, if done across board at an average rate of 10%, will save the government Shs 45.8 billion. How the government intends to save the remaining Shs 92 billion is a question for another day.

But not everyone has been happy with pay cuts as a solution to the soaring public wage bill. Arguments have been that we need to eradicate corruption, eliminate ghost workers, and improve the economy since, as the economy of Kenya currently stands, the standard of living is way too high and cutting people’s salaries will increase the miseries already faced by Kenyans.

Ghost Workers

Kenya could be losing up to shs 1.8 billion annually to ghost workers. There have been reports in the media that the government intends to roll out an audit programme (by now this programme should be at an advanced stage) meant to eliminate all ghost workers, have the payroll reworked, and foolproof systems implemented that would ensure no ghost workers exist in the payroll henceforth.

It is however important to note that the issue of ghost workers is not a new discovery. The former city council of Nairobi, municipal council of Mombasa and other councils have tried to fight ghost workers for decades without much success. The current national government, if it had the will to eradicate ghost workers in the ministries, it could have achieved that in less than 100 days in office.

Arguments have been put forth stating that the lack of good will by the government to fight ghost workers is seen in the speeches. Instead of the government giving out statistics of the number of ghost workers so far eliminated, the number of departments in ministries so far cleaned, or even the number of ministries that have so far succeeded in cleaning their systems, the government, after a whole year in office, have been talking about the intentions, audit programmes, and systems that are yet to be implemented. Some of these systems will take as many as five years (practically) to implement. In the meantime, Kenya will continue losing the over Shs 1.8 billion to ghost workers.

But how many ghost workers do we have? Don’t be surprised if it is only one.

Corruption

How much does corruption cost the economy? This is hard to figure out. But going by some info out in the public, in 2012/2013 financial year Kenya lost shs 300 billion to corruption (diplomatically put, the shs 300 billion could not be accounted for). This is one way the country loses out – through misappropriation of funds. There are also the monies lost in direct bribery, commissions obtained for tenders and other procurement procedures, and the huge chunk of money lost thanks to tax evasion.

Misappropriation of funds – Misappropriation of funds costs the country over shs 300 billion annually if last year’s Auditor General’s report and the admission by finance ministry officials, in 2010, that the country could be losing more than a third of its national budget to corruption. By that time, a third of the country’s national budget amounted to shs 344 billion which translated to over 40% of revenues collected by KRA. If the percentage has remained the same, we are talking about over shs 365 billion being lost to corruption annually in the recent financial years. So, asking civil servants to agree to pay cuts will save the country shs 46 billion only yet the country is faced with a problem worth more than shs 505 billion in wage bill and misappropriation of funds alone.

Bribery – I have not been able to arrive at any figures on how much bribery costs the country. It is however important to note that in 2013, Transparency International ranked Kenya as the fourth most corrupt country globally on its Corruption Perception Index (CPI), and their ranking was based on the rate of bribery in the country. We must also accept that a good chunk of the bribery comes from the misappropriated funds so I will consider any other amounts that bribery contributes to the overall economic loss over and above the contribution of misappropriation of funds as insignificant.

Tax Evasion – This is the monster in the house. We have to appreciate our companies like Safaricom, EABL, Equity Bank and the other big players who have consistently paid their taxes. But the multinationals are not as generous. According to Global Financial Integrity “The developing world lost US$859 billion in illicit outflows in 2010, an increase of 11% over 2009. The capital outflows stem from crime, corruption, tax evasion, and other illicit activity.” Between 2001 and 2010, Kenya has cumulatively lost Shs 9.52 trillion (or Shs 952 billion per year) on illicit financial flows (IFFs) thanks to the multinationals siphoning our economy. The multinationals, therefore, reap the country at three times more compared to the local cartels. What measures can we take to stop the illicit financial flows?

It might be difficult to fight the IFFs given the politics, Western Control, and the complexities involved but tax evasion is also being practiced by local firms across all sectors of the economy and these can be dealt with easily.

Economic Growth

A solution that has also been proposed by opponents of salary cuts is economic growth. Instead of asking guys to forgo their income, arguments have been put forth stating that the government ought to concentrate on growing the economy. But how would government grow the economy? The government collects about shs 920 billion from our revenue sources shs 460 billion of which goes to wages and salaries and another shs 280 billion goes to other recurrent expenditure. The country is then left with only shs 180 billion for developing the economy but these in additional to other funds got from donors, contribute to the over shs 360 billion lost to corruption. The country therefore develops only on funds got from the loans. Tell me how a developmental strategy dependent on donors can grow an economy.

For the economy to truly grow, we must first create the funds by foremost fighting corruption and sealing the loopholes for tax evasion. If the government came up with policies to fight corruption more so misappropriation of funds and tax evasion, they would be implementing policies and measures to tackle 99.5% of the problem. However, policies to tackle wage bill targets a very insignificant portion of the problem. By the way, in statistical standards, data that lie with 5% of the occurrences are considered ‘irrelevant’ to the overall picture.

What is your opinion on the topic?
Odipo Riaga
Managing Editor at KachTech Analytics Ltd
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Odipo Riaga is a Technology Blogger interested in emerging tech such as VR and AR, AI, Life Extension, Exponential Biotech, Immortality, Cyborgs and many others.
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