Public wage bill growing faster that real GDP: Economist

via Public wage bill growing faster that real GDP: Economist – NewsDay Zimbabwe April 8, 2016

The public sector wage bill has been growing at a faster pace than the real gross domestic product (GDP), a new report has shown.


Speaking at the validation workshop on the wage structure and labour costs in Harare yesterday, Labour and Economic Development Research Institute of Zimbabwe (Ledriz) senior economist Prosper Chitambara said the growth was unsustainable.

According to the report, in 2014, growth in the public wage bill was 16,5% compared to the real GDP growth rate of 3,1% for the same year

“In Zimbabwe, the rate at which the wage is increasing is far worse that the rate at which the economy is growing. The public sector wage bill is now compromising fiscal and debt sustainability, and jeopardising growth by generating excessive deficits and crowding out growth-enhancing public investments,” he said.

“There is urgent need to stimulate economic growth and similarly reduce the wage bill. In the short-to-medium term, the government should implement a wage policy that is fiscally sustainable.”

He said in sub-Saharan Africa, the Zimbabwe public sector wage bill has increased from 2013 to 2014 averaging 26,5%.

He, however, said reducing the public sector wage bill was one of the most difficult austerity measures for governments to undertake, but there was need to come up with bold solutions to address this.

“Establish fiscal rules to put a ceiling on the public sector wage bill. Allocate a minimum of 30% of the budget to development expenditure, implying that recurrent expenditure, including the wage bill, should not exceed 70% of the budget. Ensure that expenditure on wages and benefits do not exceed 35% of taxes and not more than 10% of gross domestic product,” he said.

Among other recommendations, Chitambara said government should put in place a biometric payroll registration of public sector workers and pensioners, downsize to make it leaner and efficient by reducing the number of ministries, resuscitate the national productivity institute and alignment of the public service salary negotiations with the National Budget process, among others.

According to the report, the average real earnings index for the whole economy has markedly declined from 159 in 2010 to 95,7 in 2014.

“This seems to confirm that real average earnings in Zimbabwe have been more downwardly flexible than previously thought and have been surprisingly responsive to unemployment rates and the weakening economy in general. The fall in real average earnings also reflects a weakening and declining productivity,” Chitambara said.

The report also exposed a huge income disparity between top management, middle management and ordinary workers within most enterprises.

“Since 2009, the income disparities between the highest and lowest paid has continued to widen.

This reflects the different ways of determining the levels with collective bargaining at the lower echelons and entitlement-based contracts at the top,” he said.

The unit labour cost and competitiveness showed that the manufacturing sector continues to increase as compared to its regional counter parts, the report said.

Manufacturing increased to 0,38% in 2014 from 0,35% in 2014, mining grew to 0,33% in 2014 from 0,29% in 2013, electricity and water has remained unchanged at 0,39% between 2014 and 2013.