Announcing the details on the salary increment to be received by civil servants, the government has disbursed a 10.3 billion Br budget for 1.3 million workers. This will increase the government's salary expense for this year to approximately 38 billion Br.
Curiously awaited since the announcement by Prime Minister Hailemariam Desalegn during the celebration Civil Service Day, the details reveal that 195 Br will be added to those on the lowest base, while 1346 Br is the addition to those on the highest scale, with 240 Br extra going to pensioners.
With the highest increase going to the lowest paid pensioners, 81pc, the new increase for those in service ranges from 33pc to 46pc, in descending order related to their previous monthly salary.
The size of the increase has been one of the hottest issues of discussion for the past month since it was first publicised by Hailemariam. The doubt has been settled, with the details provided by Sufian Ahmed, minister of Finance & Economic Development, and Misrak Mekonnen (PhD), state minister of the Civil Service, yesterday, on August 2, 2014.
The increment increases the lowest salary of civil servants from 420 Br to 615 Br and the highest salary from 4,434 Br to 5,780 Br. The pension for the lowest salary will grow from 294 Br to 534 Br, according to Sufian. The mid-salaried civil servants, who earn above 700 Br in the current salary structure, will have an increment of 36pc to 38pc, according to Misrak.
This salary alone is not enough to minimise the civil servants' expenses, Sufian said during the press conference. "There needs to be additional changes, such as the supply of homes both for rent and sale, a free transportation service and the provision of consumption goods at an average price, which the government is working on."
The salary increment may have the effect of reducing employee turnover, which is one of the current problems of government agencies, according to Tasew Welde Mariam (PhD), associate professor at the Addis Abeba University's Faculty of Business & Economics (FBE).
It will also increase consumption and the aggregate demand of the market with the employees having more money to spend, which could cause the producers to respond, says Tasew.
"There will be increased production, as there will be active participation in the market," he told Fortune.
Tassew is also curious about the possibility that the increase may result in inflation in the shorter term.
Following the increment, the immediate increase on the demand side may not be matched by the same response from the supply side, according to Tassew.
"This will lead to a short period of inflation, but it should not last long," he told Fortune. "There will be inflation if the increased demand does not have a supply response."
This increment is the fifth since the EPRDF government came into power. In 1992/93, an amendment was made to the lower salary of the civil servants, from 50 Br to 150 Br. There were also further increments in 2000/01, 2006/07 and 2010/11. Compared to the last increment, this latest increase shows an improvement of eight percent.
The size of the increase is, however, not to the expectation of the majority of government employees, including Tassew.
"The increment is not as big as my expectation," he said.
Another civil servant, who does not want to be identified by name, not only shares Tassew's view, but also fears an inflationary effect.
"The increment is not that much satisfactory, rather it has made me concerned about inflation," he told Fortune. "I don't believe the government will control the inflationary behaviours being signalled in the market, even though there are some activities underway."
However, in economic terms the effect of the increment is not going to be significant for macroeconomist, Tassew.
"The money that comes to the market is small, so there will be no such a significant effect on either the market or inflation," he said. "If the retailers increase the price of their goods, they are going to be affected because the demand will decrease."