The Challenges of Pay Reform in Zambia Managing

The Challenges of Pay Reform in Zambia Managing the Payroll and the Establishment 1

Pay has fallen. Pay scales have compressed. Sources: Colcough, 1997, Tables 4. 9 – 4. 11; Directorate of Personnel; Republic of Zambia, 2001 c; and Calculations. 2

It is difficult to sustain reductions in the size of the civil service. Employment fell after 1997. But is creeping up. Sources: Colcough 1997, Table 4. 3, p. 73; International Monetary Fund, Figure, Number of Public Servants, 1989 -99, page 5; Data Centre, Mo. FED. 3

Allowances significantly add to the salaries, especially at the top. Source: Data Centre, Ministry of Finance and Economic Development 4

Imagination is needed in the design of allowances. Allowances Proposed for Consolidation or Elimination PD CODE Category of Compensation 2 2. 3 2. 148 3 3. 17 3. 39 3. 43 3. 47 3. 51 3. 53 3. 55 3. 57 3. 59 3. 63 3. 67 3. 94 3. 96 3. 98 3. 102 3. 153 3. 165 3. 167 3. 169 3. 171 3. 173 Amount Number of Recipients Average Payment per Request Flexible Allowances Housing Allowances 69, 563, 233 150 463, 755 Local Supplementation Allowance 6, 131 7 876 Sub-Total 69, 569, 364 157 443, 117 Fixed Allowances Tool Allowance 29, 692, 642 1, 958 15, 165 Instructors Allowance 358, 720 180 1, 993 Machine Allowance 1, 500 3 500 Grade Allowance 75 54 1 Amourer Allowance 24, 485 46 532 Bandsman Allowance 820 38 22 Coxwains Allowance 42, 116 7, 019 Dog Handler Allowance 1, 675 8 209 Equitation Allowance 678 12 57 Mental Allowance 10, 019 6 1, 670 Trade Testing Allowance 8, 284 11 753 Body Guard Allowance 44, 552 199 224 Finger Print Expert Allowance 29, 032 102 285 Protect. Unit Kilometre Allowance 11, 745 261 45 Danger Risk Allowance 19, 820, 263 13, 134 1, 509 Non Private Practising Allowance 153, 020, 962 110 1, 391, 100 Medical Allowance 5, 300, 210 55 96, 367 Telephone Allowance 4, 549, 638 56 81, 244 Entertainment Allowance 6, 037, 206 54 111, 800 Motor Vehicle Allowance 5, 424, 394 57 95, 165 Drivers Allowance 5, 830, 998 59 98, 830 Secretarial Allowance 10, 891, 992 55 198, 036 Sub-Total Grand Total 241, 102, 004 16, 464 310, 671, 368 16, 621 14, 644 18, 691 5

Then employment structure is very fragmented There are 26 salary scales Within the structure there are 185 salary grades Some job scales contain few grades, some just one, with few personnel within them For many grades, average differentials are 1 per cent or less Thus increments regards as rights, contributing to salary creep The proliferation took place when the economic crisis limited the potential to salary increases Zambia now moving to 26 job-grade scales 6

It is difficult to recruit technical and professional staff Few responses to adverts, most without minimum qualifications Staff trained under projects leave for private sector – procurement officers, accountants, lawyers Salaries in private sector typically 4 to 10 times higher Income maintenance strategies: moonlighting, sitting allowances, … Also senior staff hired by parastatals on contracts for civil service jobs Less of a problem at the lower end, many applications for any vacancies 7

The wage bill is a focus of policy concern. It is on a rising trend (everywhere). Expenditures and Wage Bill Trends Relative to GDP, 1998 - 2001 (Kwacha in Billions) 1998 GDP market prices Total Re-current Expenditures excl. debt service Total Wage Bill Public Service Wage Bill Expenditures/GDP % Total Wage Bill/GDP % Public Service Wage Bill/GDP % 1999 2000 9, 087. 000 1, 533. 400 538. 300 284. 00 2001 6, 028. 60 1, 139. 41 l 319. 52 7, 411. 50 1, 237. 72 392. 81 231. 01 11, 715. 289 2, 237. 620 738. 063 387. 576491. 716 18. 90% 5. 30% 16. 70% 5. 30% 3. 83% 16. 87% 5. 92% 3. 83% 19. 10% 6. 30% 4. 27% 28. 04% 31. 74% 20. 27% 35. 10% 22. 95% 32. 98% 25. 28% 26. 80% 2. 02% 30. 10% 3. 47% 18. 70% 5. 20% 4. 55% Total Wage Bill/Exp % Public Service Wage Bill/Exp % 21. 97% Annual rate of increase in Public Service Wage Bill Annual Inflation rate 24. 50% -1. 90% Source: Republic of Zambia, 2001 a; International Monetary Fund, 1999; International Monetary Fund, 2001, Standard Bank, 2002; and Price Waterhouse Coopers, 2002. 8

It is difficult to manage the wage bill together with the establishment. 9

Note the varying responsibilities for different parts of the establishment. Institution PE’s in Yellow Book Cash Release for PE’s Payroll managed by Mo. F Comments Electoral Commission X X Viewed as autonomous but funded as PE’s rather than grants Judiciary X X Is supposed to be treated as autonomous, i. e. , grant-funded in future Anti-Corruption Commission X X National Assembly X Viewed as autonomous but funded as PE’s rather than grants Human Rights Commission X Viewed as autonomous but funded as PE’s rather than grants Is supposed to be treated as autonomous, i. e. , grant-funded in future Health Boards X X In YB as Grants although releases are as PE’s UTH X X In YB as Grants although releases are as PE’s X X Represents status of most ministries. Ministry of Commerce X ZRA Completely autonomous Defense X Payroll managed independently, so data is lacking Intelligence X Payroll managed independently, so data is lacking 10

The Government decided to introduce a sustainable medium term pay reform policy. Projections of Recurrent Expenditures and Wage Bill Relative to GDP, 2001 – 2007 (Kwacha in Billions) Categories GDP market prices Recurrent Expenditures excl. debt service Total Wage Bill Public Service Wage Bill 2001 2002 2003 2004 2005 2006 2007 11, 715. 29 13, 585. 05 15, 470. 65 17, 541. 02 19, 799. 42 22, 036. 76 24, 526. 90 2, 237. 62 738. 06 491. 72 2, 350. 21 842. 27 608. 96 2, 630. 01 959. 18 693. 49 2, 981. 97 999. 84 722. 88 3, 365. 90 1, 128. 57 815. 95 3, 746. 25 1, 256. 10 908. 16 4, 169. 57 1, 398. 03 1, 010. 78 Expenditures/GDP % Total Wage Bill/GDP % Public Service Wage Bill/GDP % 19. 10% 6. 30% 4. 55% 17. 30% 6. 20% 4. 48% 17. 00% 5. 70% 4. 12% Total Wage Bill/Exp % Public Service Wage Bill/Exp % Annual Inflation rate GDP Real Growth Rate 32. 98% 21. 97% 18. 70% 5. 20% 35. 84% 25. 91% 13. 00% 4. 00% 36. 47% 26. 37% 11. 00% 4. 00% 33. 53% 24. 24% 10. 00% 4. 50% 33. 53% 24. 24% 9. 00% 5. 00% 33. 53% 24. 24% 7. 50% 5. 00% Source: International Monetary Fund, 2001, Standard Bank, 2002; Price Waterhouse Coopers, 2002; and projections. 11

Cabinet approved a policy involving: Decompression Retrenchment Folding allowances into pay (scenario 4) Scenarios Assumptions Matrix Wage Bill/GDP Ratio Employment Trends Salary Structure Scenario 1 The Wage Bill/GDP ratio declines from 6. 2% in 2002 to 5. 7% in 2003 and remain constant thereinafter. Size of the public service remains constrained at 2001 level. New salary structure introduced. Salary differentials (increment and grade differentials) remain constraint through the period. Scenario 2 Same as Scenario 1. Size of the public service reduced in line with the KPMG report recommendations. New salary structure introduced. Salary differentials (increment and grade differentials) remain constraint through the period. Scenario 3 Same as Scenario 1. Same as Scenario 2. New salary structure introduced. Salary differentials (increment and grade differentials) rise through the period. Scenario 4 Same as Scenario 1. New salary structure introduced. Salary differentials (increment and grade differentials) rise through the period. Allowances are eliminated for the compensation structure. 12

But the policy was immediately knocked off course! Current Headcount of Annual Wage Bill Civil Service Defense, Intelligence, National Assembly billion 119, 373 n/a 233. 3 billion Current Estimate of Wage Bill 901. 2 billion Original MTPRS 609. 0 billion 463. 3 13

But perhaps has been some sustainable progress: l The payroll and the establishment will soon be a single database; a major payroll cleansing exercise has been carried out l Some allowances have been eliminated l The number of salary scales has been reduced from 26 to 6 l The number of salary grades from 185 to 68 l For the first time the Government had a medium term policy when it went into the negotiations with the unions 14

Lesson Difficult enough to prepare a meaningful and sustainable wage policy/plan/strategy Real challenge is in the implementation We must provide consulting/training resources needed to support implementation, not just say: “Here is the policy, now be tough, implement it!” 15

Mozambique (meticais) Public Sector Private Sector Salary Subsidies Benefits Total Teachers 4. 013. 561 1. 877. 958 1. 275. 000 6. 025. 771 9. 880. 000 743. 056 650. 000 Nurses 2. 013. 589 1. 200. 000 2. 762. 638 6. 000 500. 000 575. 000 Others 4. 418. 811 2. 996. 411 8. 652. 996 20. 242. 096 170. 342 2. 685. 716 Salary Subsidies 6. 619. 972 Benefits 2. 985. 440 Total 10. 585. 833 7. 075. 000 28. 679. 282 16

Sierra Leone (Leones) – Salary plus allowances Civil Service Stan Chart Bank SLComm Bank Rokel Comm Bank BSL (Central Bank) SLState Lottery Union Trust Bank Chief Executive 24, 131, 750 59, 250, 000 60, 565, 789 79, 500, 000 50, 080, 000 53, 560, 000 56, 354, 992 Top Management (Heads of Dept. ) 14, 994, 000 37, 620, 000 39, 600, 000 55, 125, 000 31, 116, 663 30, 258, 482 31, 837, 500 Middle Management 6, 650, 387 13, 862, 264 14, 170, 109 18, 600, 000 11, 716, 830 17, 772, 552 18, 700, 000 Clerical 3, 196, 360 7, 200, 000 10, 800, 000 6, 030, 000 5, 631, 433 3, 309, 907 5, 550, 000 Middle Level Support Staff 1, 696, 136 4, 836, 264 6, 701, 330 4, 696, 319 3, 705, 826 2, 841, 767 4, 023, 746 Junior 979, 137 2, 472, 528 2, 602, 661 3, 362, 638 1, 780, 220 2, 373, 627 2, 497, 493 CR* 25 24 23 24 28 23 23 17