Most counties chipping away at burdensome wage bills, report shows

Counties are making incremental gains in reducing the share of total spending taken up by salaries and allowances at a time when the national wage bill, relative to total expenses, revenue and gross domestic product, has remained stable, contrary to opinions that have painted a dire and escalating situation.

The Office of the Controller of Budget’s budget implementation review report of the first half of the 2018/2019 financial year indicates that 31 counties or two-thirds registered a decline in the share of total spending (sum of recurrent and development) used up by wages, allowances and related benefits in the period between July and December last year, compared with the same period in the previous financial year.

Tharaka-Nithi County had the biggest improvement of 32 percentage-points drop (from 94 percent to 62 percent), followed by Kitui (31), Meru (28), Kajiado (25) and Kirinyaga (24).

However, some counties recorded an increase in the proportion of their total spending used up on salaries and allowances. Elgeyo-Marakwet was the worst-performing county, with a rise of 26 percentage-points from 40 percent to 66 percent. It was followed by Samburu, Wajir, Laikipia and Garissa with 23, 16, 15 and 10 percentage-points jumps, respectively.

Despite the progress by most counties, there are some that are still spending almost their entire budgets on salaries and employee benefits. Wajir County was the worst-performing with 89 percent, followed by Baringo and Nyamira, at 76 each, Kisumu (74) and Machakos (71).

Mandera County recorded the smallest percentage of the wage bill to spending, at 34 percent, followed by Kajiado (36), Kilifi (37), Kwale (38) and Tana River (44).

Even though county governments had their spending on wages in absolute figures in the first half of the fiscal year 2018/2019 increase to Sh80 billion in 2018 from Sh66.5 billion in 2017/2018, there was a drop in the share of personal emoluments to the total spending from 64 percent to 58 percent. The national government, on the other hand, saw its share remain constant at 27 percent of its total spending, accounting for Sh193.9 billion in 2018.

Combined spending by the national government and counties on salaries and allowances in the first half of the 2018/2019 was Sh273.9 billion, or 32 percent of total expenses, and the same share as the previous financial year.

The national government’s wage bill has been much smaller as a share of its total spending and more stable than the county governments’ in the past five financial years. Data from national government annual reports by the Office of the Controller of Budget indicates that expenses on employee compensation to total spending stood at 27 percent in the fiscal year 2017/2018, a three percentage-point increase from 24 percent in the 2013/2014 fiscal year, the first under the Jubilee government. The proportion was highest in 2014/2015, at 30 percent, and it was lowest, at 23 percent, in 2016/2017.

In 2016, when Kenya’s wage bill (sum of national and county government) as a share of total expenses stood at 30 percent. It was lower than South Africa’s, which South Africa’s OECD Economic Survey 2017 placed at 35 percent then. However, spending on wages and benefits as a share of gross domestic product (GDP) was seven percent, similar to Uganda’s and half the proportion of South Africa’s.

The county governments, on the other hand, saw the share of total spending taken up by salaries peak in the fiscal year 2017/2018 at 50 percent. It had stagnated at about 40 percent in the previous four years.

The Public Finance Act caps both the national government’s and counties’ spending on the compensation of employees at 35 percent of revenues. It therefore means that the national government is insulated from legal action while all the county governments are in gross violation and exposed to legal risks.

A NationNewsplex trend analysis shows that Kenya’s share of total salary payments to the total revenue collected (tax and non-tax, excluding loans and grants) has generally swung between 28 percent and 32 percent in the past five financial years. Non-tax revenue includes user fees and dividends and profits received from public-sector companies. This analysis excluded grants and loans.

Counties saw the ratio of their salaries and allowances payments to revenue decrease by eight percent to 47 percent in the first half 2018/2019 fiscal year from 55 percent over the same period the previous financial year.

During the six months, Kirinyaga County led 36 counties with a 55 percentage-points drop, followed by Isiolo (47), Nyandarua (43), Embu (41) and West Pokot (38). Inversely, Elgeyo-Marakwet had the highest rise of 27 percentage points, followed by Laikipia (23), Uasin Gishu (22), Nairobi (18) and Samburu (12).

Ten counties had their proportion of funds spent on salaries and allowances as a share of revenue increase in the first half of the current fiscal year compared with the same period over the previous financial year. Kwale’s share stayed the same.
Kwale County had the least share of revenue spent on wages, at 19 percent, followed by Kajiado (21 percent), Mandera (23 percent), Tana River (24 percent) and Kilifi (25 percent). The revenue for counties considered in this analysis includes money from the national government, own revenue sources and cash balance from the previous full financial year (2017/2018), and excludes conditional grants.

On the other hand, Nairobi County led in the share of revenue that went to paying salaries, at 80 percent. It was followed by Elgeyo-Marakwet (70 percent), Taita-Taveta (68 percent), Laikipia and Meru at 64 percent each. Kisii and Nyeri rounded off the top five with 62 percent each.

Counties started off in 2013 with the priority of creating structures, including the county public service, to implement devolved functions such as agricultural services, healthcare and pre-primary education, making a steep growth in wage bills almost inevitable. Employment by counties continued to rise and reached 133,000 people in 2017.

However, as the growth of the county governments’ workforce stabilises, it is expected that it will release funds to be spent on other needs, including development.

Nationally, wage employment in the public sector has not grown as fast as widely perceived. According to the Economic Survey 2018, the number of people employed increased annually by less than three percent from 2013 to 2016, then shot up by over seven percent in 2017 due to the extra personnel engaged by the Independent Electoral and Boundaries Commission (IEBC) for the 2017 General Elections. These increases over the three years were mainly due to recruitment in the essential services, including health, education and security.

There were 790,200 public servants or almost a third of wage employment in 2017, according to the Economic Survey 2018.

The Teachers Service Commission (TSC), the largest employer in the public sector, registered a decelerated growth of nearly two percent in 2017 compared with an increase of two percent in 2016. The slow employment growth rate, coupled with the current primary school to secondary school transition rate of 100 percent, has resulted into a strain on teachers.

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But even with the slump in the uptake of teachers, TSC still commanded Sh181 billion (33 percent of total allocations) in 2017 compared with the Sh110 billion (20 percent) given to counties, even as the total amount allocated to counties almost doubled (94 percent) since 2013 against TSC’s growth of more than a third (39 percent) in the same period.

This was expected, it argued, because of increased spending in necessary services such as agriculture and health.

Real average earnings declined by seven percent in the public sector in 2017 from 2016, but fell by one percent in the private sector.

Overall, earnings grew at a slower pace in the public sector than in the private sector, rising by nine percent from Sh503.5 billion in 2016 to Sh549.1 billion in 2017 compared with the private sector’s 11 percent from Sh1.14 trillion to Sh1.27 trillion, according to the Economic Survey 2018. The contribution of the public sector to the total wage earnings also decreased marginally from 31 percent in 2016 to 30 percent in 2017.

Kenya’s public wage bill as a share of GDP stood at seven percent for the past three years – a decline from eight percent in the two previous years. A 2014 International Monetary Fund (IMF) report, Public Employment and Compensation Reform during Times of Fiscal Consolidation, found that the public wage bill-to-GDP ratio had risen in low-income countries.

IMF points out that a lower wage bill-to-GDP ratio does not necessarily mean the public service is more efficient. In fact, it could mean public servants in crucial fields are underpaid and unable to press for better conditions of service where unions are weak.
What governments need to guard against more is loss of funds through a bloated workforce and dubious payments.

President Uhuru Kenyatta said, while launching the Huduma Namba registration exercise in Masii, Machakos County, that digital listing of police officers helped weed out over 5,000 ghost workers, saving the country Sh148 million in monthly wages.

Auditor-General Edward Ouko’s reports on State agencies for the past four years has also revealed that public servants have cost the taxpayer some Sh300 million in unpaid loans and irregularly awarded salary advances.

Governments can improve the link between payroll and personnel systems, which can reduce the occurrence of ghost workers, according to a 2016 IMF study, Managing Government Compensation and Employment, that explored how to manage government pay and employment better.