Kenya has frozen salary increments for all civil servants for two years beginning July, setting the stage for tough times ahead, amid Treasury's admission that it is struggling to get enough money to run government.
The suspension announced by the Salaries and Remuneration Commission (SRC) affects basic salary, allowances and benefits paid in the public sector, and affects all workers.
SRC said the decision to suspend implementation of the third pay review cycle was made due to hard economic times caused by the Covid-19 pandemic.
"The National Treasury advised the commission that due to the effects of Covid-19 on the performance of revenue and the expected slow economic recovery, it should consider postponing the review for the next two fiscal years until the economy improves...The National Treasury will review the performance of the economy and advise SRC as and when the review can be done based on the prevailing circumstances to ensure affordability and fiscal sustainability," SRC chairperson Lyn Mengich said on Thursday.
The commission said that by doing this, the government will save a substantial amount from the Sh82 billion it would have spent on implementation of the 2021/22 - 2024/25 remuneration review cycle.
"The current Public Sector Wage bill consumes a larger percentage of revenue than the target set in public finance management act 2012 and a larger percentage of GDP compared to average for developing countries. To jumpstart the Covid-19 ravaged economy, more resources must be made available for investment in the government priority areas. To release resources for investment in the priority areas, the wage bill to revenue and to GDP ratios must take a trajectory towards achievement of the target ratios," she added.
Hit workers hard
The impact of the new development is expected to hit public sector workers when the freeze meets SRC's directive a few months ago, that all public institutions create a framework to ensure allowances paid to workers do not exceed 40 per cent of their pay.
Read: Civil servants face allowances squeeze
Implementation of the directive begins next month and will have the effect of reducing incomes earned by a majority of government workers who have been relying on allowances to make extra money.
The decisions have been made at a time when Kenya's public wage bill has been on a ballooning trend for over five years, growing by 34.5 per cent between 2015 and 2020.
Figures from the commission show that the wage bill has grown from Sh615 billion (2015/16), Sh664 billion (2016/17), Sh733 billion (2017/18), Sh795 billion (2018/19) to the current Sh827 billion (2019/20).
The SRC boss said if Treasury's revenue targets are met in the coming financial year, the freeze on pay increments will have the effect of reducing the burden of the public wage bill on Kenya's revenues from 51.7 per cent to 48 per cent.
The decision also comes at a time when Treasury has admitted to the fact that the country is going broke, with disbursements to County Governments, Ministries, Departments and Agencies (MDAs) falling behind schedule.
"There is a challenge of revenue performance as a result of slowed economic activities and this is not unique only to counties. We have challenges...we are really falling behind," Treasury Cabinet Secretary Ukur Yatani told Senate this week.
Read: Counties shutdown looms in showdown between governors and Treasury