Redirect wage resources—bank

The World Bank has advised the Malawi Government to redirect its resources from the public wage bill to “more productive” areas to catalyse growth.

The advice comes against the backdrop of the ballooning civil service wage bill which has increased from K900.44 billion to K980.49 billion during this fiscal year on the back of a nine percent pay rise to cushion civil servants from the 44 percent kwacha devaluation.

In view of this, the wage bill now takes up 25 percent of the total budget pegged at K4.33 trillion.

In its Country Economic Memorandum released earlier this month, the Bretton Woods institution observed that the wage bill has grown from an average of 2.5 percent of gross domestic product (GDP) in 2008/09 fiscal year to six percent in the last financial year.

Reads the report in part: “Reverting to previous levels of expenditure on compensation of employees alone can free up resources in excess of the previously discussed public investment levels.”

The recommendation follows a similar observation in the July 2023 issue of the Malawi Economic Monitor in which the World Bank‌ also observed that government’s over-expenditure on the wage bill offsets any gains made from the additional revenues collected in the year before.

However, previous government efforts to contain the wage bill or put caps on salary adjustments have met with public criticism.

Recently, civil servants in the health sector, under National Organisation of Nurses (Nonm) and Midwives and Physicians Assistants Union of Malawi (Paum) have also given government an ultimatum to implement a 44 percent salary increment or face industrial action on December 29, a development that threatens to increase the wage bill even further.

Paum and Nonm have also called on government to immediately review and revise downwards the current pay-as-you earn tax to boost workers’ incomes.

In an interview on Sunday, Malawi University of Science and Technology economics lecturer Bertha Bangara-Chikadza, who is also Economics Association of Malawi vice-president, said cleaning out ghost workers and restructuring employee benefits, which are the main drivers of inefficiencies in the civil service, would improve how resources are used and allocated in the civil service.

“There are other employment-related benefits which do not show under the wage bill, but they are really heavy and they eat up a large percentage of other recurrent transactions which would otherwise be used for other important activities,” she said.

Last month, Reserve Bank of Malawi Governor Wilson Banda spoke against salary demands in response to the 44 percent kwacha devaluation, warning that if adopted, it could trigger inflation spiral and put pressure on the already strained fiscal plan.

He said: “There is that reaction that things are now becoming expensive. We need to have higher wages from government or private companies and the like.

“That in itself can create another round of problems. If government does not have the resources, it will create deficits.”

Banda said while wage increase demands are understandable, the implication would outweigh the benefits.

In the 2023/24 Mid-Year Budget Review Statement, Minister of Finance and Economic Affairs Simplex Chithyola Banda said the overall fiscal deficit is estimated to increase from K1.235 trillion or 8.1 percent of GDP to K1.278 trillion, representing about 8.2 percent of GDP.

He said the increase was pushed by compensation of employees, development expenditure, use of goods and services, social benefits and other expenses.