… As calls increase to tackle the ‘elephant in the room’
By Hilary Mare
FOLLOWING Moody’s Investors Service downgrading Namibia to junk status recently, local economists have called on government to address its bloated civil service wage bill, as part of its plans facilitate the country’s economic recovery.
According to figures revealed in the latest edition of the Tender Bulletin, government’s civil service wage bill has ballooned from N$17.9 billion in the 2014/15 financial year to N$28.1 billion in the current financial year.
FNB Namibia Head of Research and a well-known economist, Namene Kalili, outlined the consequences of the current bloated public service wage bill to Confidente this week, while noting that the government may have to reduce size of the civil service and rid the economy of the inherent adverse effects.
“Any bloated wage bill is inefficient, as it means you are paying wages for people who are not really needed, and as such, are underutilised. Resources should be available in the required quantities and at the right time. There is no use having a heart surgeon standing by, when there is no cardiac unit within which to perform the heart surgery. This is a concept called Pareto efficiency,” Kalili said.
“The additional expenditure has high opportunity costs, given the massive infrastructure backlog that could perhaps be addressed instead. By our calculations, from every tax dollar that is collected to pay for government expenditure, we spend 50 cents on wages, 13 cents on SOEs and services and 9 cents for interest payments. This leaves a mere 11 cents for goods and services, which include essentials like medicines, textbooks and drought relief.”
In its downgrade report, Moody’s noted a sizeable increase in the civil service wage bill, which already amounted to 40 percent of total government expenditure in the 2016/17 fiscal year, while projecting that this figure would increase to 45 percent in the 2017/18 financial year. This is reflected in government’s elevated fiscal spending of 40 percent of Gross Domestic Product (GDP) in the 2017/18 budget, up from the 35 percent budgeted in the mid-term budget review in October 2016. “Even before this latest wage increase, Namibia had one of the highest (civil service) wage bills (according to various metrics) in Africa, and among middle-income countries globally, and this should be addressed,” Moody’s noted. Kalili said that the only way to deal with this was to reduce the size of the civil service.
“Understandably, this is a tough task, as it would impact employment levels immediately. According to the budget documents, government said they had reduced the headcount by 10 percent, but the wage bill still increased by 15 percent. This was due to the increased wage adjustments, after last year’s teachers’ strike and increased medical aid costs for civil servants,” Kalili added. During a media conference last week, Finance Minister Calle Schlettwein admitted that the public wage bill has been the “elephant in the room”.
He said a submission had been made to the Office of the Prime Minister, in an attempt to address the issue, which had received positive attention.
Capricorn Asset Management economic analyst, Claudia Boamah, said this week that the Moody’s report basically implies that the Namibia’s challenges can be addressed with a policy to rein in spending, which is precisely the path that the government is on.
“On the other hand, the 2017/18 budget did project an increase in the (civil service) wage bill over the medium-term. This would maintain the debt-to-GDP ratio above the sustainable level of 35 percent. Liquidity concerns have been addressed by the receipt of the African Development Bank loan. However, the agency (Moody’s) is not impressed by the use of debt to finance expenditure. In June, Namibia’s foreign reserves hit a record high, but Moody’s will accept nothing short of a permanent increase in our foreign exchange reserves,” Boamah said.
Asked whether the public service wage bill may have an impact on the upcoming ratings by other agencies, Kalili said, “It certainly will, but I think the bigger concern is the off balance sheet debt that surfaced, namely the unpaid invoices. Ratings agencies hate such negative surprises, and have a history of immediate ratings’ actions, when these negative surprises surface. These are all symptoms of a larger problem, namely an unsustainable civil service.”
Earlier this year, the Simonis Storm Securities research team, headed by Purvance Heuer, noted that a huge challenge for government was the management of the public service wage bill. This was after Schlettwein announced in his budget speech that the civil service wage bill, which now stands at 49 percent of all non-interest expenditure, had been a major driver for increased public expenditure.
“In fact, operational expenditure accounts for 85 percent of total expenditure, while the public wage bill represents 88 percent of operational expenditure for the financial year 2016/17,” the securities firm said at the time.
Confidente. Lifting the Lid. Copyright © 2015