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70765
Achieving Fiscal Sustainability in Swaziland:
Reestablishing Control over the Wage Bill
Policy Note
December 2010
Poverty Reduction and Economic Management 1 Southern Africa
Africa region
Document of the World Bank
Summary
(i)
The wage bill (as a percentage of GDP) has become uncommonly large in Swaziland.
It is larger when measured against historic levels and against other countries in Africa
and the world.
(ii)
The gaping fiscal deficit of about 15 percent of GDP in 2010/11, and the difficulty in
securing the requisite financing have precipitated the need for a rapid intervention in
curtailing the wage bill. The irreversible reduction of the SACU revenue base is
being addressed by earnest efforts to boost non-SACU revenue that will have an
impact in the medium term, thus shifting the emphasis for expenditure restraint on an
orderly roll-back of the wage bill. Moreover, a thoughtful resizing of the civil service
is likely to facilitate private sector-led growth, since its expansion has most likely
come at the expense of the private sector. It is the expansion of the private sector that
must be counted on in the long term to sustain the government’s expenditure plans.
(iii)
Wage bill needs to be addressed urgently for two main reasons. The first is that it
cannot be afforded any more, as the public revenue base has experienced a significant
collapse that will not be reversed in the near future. The second is that wages are
crowding out other type of expenditure that are necessary for quality service delivery.
(iv)
Swaziland needs to consider two sets of options: one set to put the wage bill on a
track that will see it decrease permanently over time as a percentage of GDP, and one
that will contract it rapidly to achieve fiscal sustainability. The two sets of options,
while conceptually different, need to be considered jointly to keep government
effective and efficient.
(v)
On the structural side, the options include:




(vi)
splitting the wage increase into a “cost of living adjustment” component (lower
than inflation) and a discretionary component based on promotions from notch to
notch within an expanded “notch system”;
a reassessment of the government contribution to the pension fund;
a review of allowance schemes; and
a lowering of the pension age for some or all of the civil service.
Immediate measures that need to be considered are centered on the EVERS initiative.
These measures include:

an assessment of the demand for the package under the current scheme;
1




(vii)
an assessment of the fiscal impact of the scheme depending on target reductions
in the number of positions and the uptake;
a clear concurrent communication plan on the government’s need for
retrenchment regardless of EVERS;
transfers of civil servants to new purposeful agencies without automatic eligibility
under EVERS; and
sequencing of benefits under EVERS (to minimize immediate expenditure and
curtail later claims of social welfare).
A simple modeling exercise, based on the actual pay scale and positions in the civil
service (and estimates for the army) provides insights as to the drivers of the wage
bill. It also evidences the need to act decisively and rapidly to make it sustainable. It
is only with a mix of immediate one-off reductions in wages and positions, with
differentiated and selective increases in wages and positions looking forward, that the
wage bill can be brought down to a sustainable level.
2
Macroeconomic Background
1.
Swaziland is facing an unsustainable fiscal deficit since FY 2009/10. It is slated to be
around 15 percent of GDP in FY 2010/11, up from 7.6 percent the previous year. This
imbalance is threatening the macroeconomic stability of the economy: reserve levels have fallen
by more than half over the past 6 months, to the equivalent of 2.7 months of imports. A further
decrease is bound to threaten the sustainability of the main macro policy anchor: the peg of the
Lilangeni to the South African Rand.
2.
The fiscal deficit is the result of two factors: the collapse of the revenue from the
Southern Africa Customs Union (SACU) mainly because of the global economic downturn, and
the gradual increase in expenditure. SACU revenue had repeatedly exceeded expectations and
reached a high of 25.3 percent of GDP in 2008/09, contributing upward of 60 percent of overall
fiscal revenue. They came down by 16 percentage points of GDP, to 9.3 percent of GDP in
FY2010/11 and are not forecast to improve significantly over the medium term. Meanwhile,
expenditure levels had steadily increased, reaching a high of 45.7 percent of GDP in 2009/10,
thanks in large part to continuous pressure from recurrent expenditure, among which wages.
While public spending has been brought down to 38.9 percent in 2010/11, further progress is
hampered by mandatory expenditure items; the wage bill stands out, at 17.8 percent of GDP.
Graph 1: Swaziland - Revenue and Expenditure Trends as a Percentage of GDP
% of GDP
1.
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2001/2002
2004/2005
2007/2009
Revenue
2010/2011
Total Expenditure
Source: IMF
3.
The total cost of the civil service1 accounts for a substantial portion of overall
government spending. As of 2010, the cost of the civil service was 17.8 percent of GDP (up by
1.3 percentage points of GDP over 2008 figures), which is more than half of all recurrent
1
The cost of the civil service comprises gross salaries, personnel allowances of around 5 percent of gross salaries
(in cash), travel allowances of around 6 percent of salaries, and a legally mandated transfer to the public pension
fund of 15 percent. Salaries therefore make up a little under 80 percent of the cost of the civil service. The figures
do not account for the allowances in kind, especially government housing that is available widely across the civil
service regardless of duty station.
3
expenditure. It is also significantly higher than the sum of all domestic revenue streams (14.6
percent of GDP) – which are the revenue streams that the Government has greater control over.
Graph 2: Swaziland - Composition of Expenditure as a Percentage of GDP
45.0%
40.0%
35.0%
30.0%
25.0%
% of GDP
20.0%
15.0%
10.0%
5.0%
0.0%
2001/2002
Total Expenditure
2004/2005
2007/2009
of which Recurrent Expenditure
2010/2011
of which Wages
Source: IMF and World Bank staff calculations
4.
Overall, the size of Swaziland’s wage bill is exceptionally large. An international
comparison of the costs of civil services indicates that Swaziland has one of the highest such
ratios in the world (see Graph 1), even when compared to OECD countries in which public
expenditure have traditionally been high as a fraction of GDP (i.e. France)
Graph 3: Swaziland - Wages as Percent of GDP in Select Countries (2010)
20%
% of GDP
15%
10%
5%
0%
South Africa
France
Lesotho
Source: IMF Art IV Consultation Reports
4
Seychelles
Swaziland
The Wage Bill: Positions and Wages
5.
The underlying factor for this real increase is predominantly the increase in the number of
positions, and not so much the yearly salary increases. The nominal value of the wage bill since
2008 has increased by 29.3 percent, almost exactly the combined value of inflation over the same
period (29.2 percent) – although the nominal increases were not even across all departments,
since the army saw an exceptional salary increase of 20 percent in 2009/10. The real increase in
the cost of the civil service is thus mostly due to the expansion of its headcount, which is highest
and increasing fastest in the Ministry of Education, as shown in the graph below.
Graph 4: Swaziland - Personnel Costs in Ministries and Departments (Current Emalangeni)
2,000,000,000
1,800,000,000
1,600,000,000
1,400,000,000
1,200,000,000
1,000,000,000
800,000,000
600,000,000
400,000,000
200,000,000
0
Statutory
Civil List
Parliament
Private & Cabinet
Tourism & Environment
Police
DPM
Foreign Affairs & Trade
Defence
Tinkhundla…
NRE
Geology
Agriculture
Economic Planning &…
Housing & Urban Dvpt
Fire & Emergency…
Commerce & Industry
Education & training
Finance
Treasury & Stores
Income Tax
Internal Audit
Customs & Excise
Labour & Social Security
Public Service
Information…
Elections & Boundaries…
Health
Justice &…
Anti Corruption
Judiciary
Correctional Services
Home Affairs
National Treasury
Public Works &…
Sports, Culture, Youth
Audit
2.
2008
2009
2010
2011
Source: Government of Swaziland and World Bank staff calculations
6.
Swaziland’s civil service2 comprises 40,601 positions, the vast majority of which are
3.
filled The ministries of education and health (together referred to as the “social cluster”)
account for 46.3 percent (18,798) of civil servants. The single largest category of civil servants
are teachers, of which there are more than 12,000. The ministries of defense, correctional
services, the police and the ministry of home affairs (together referred to as the “security
cluster”) employs 11,728 staff (28.9 percent of the total).
7.
The number of positions in the civil service has expanded significantly in the past 3
years. Between 2008 and 2011, it grew by 2,289 people: from 38,312 people (including the
2
The civil service is defined as the staff in the various administrative frameworks answering to a member of
cabinet. These include the civil service strictly defined and the army, but it excludes certain categories of staff who
are at least in part financed from the public purse. It also excludes staff who work for autonomous agencies that
are financed from lump sum transfers and report to a minister, and staff who report directly to the King. It is
estimated that there could be up to 3,000 staff in these categories.
3
There is on average a 5 percent vacancy rate due to normal turnover.
5
armed forces) to 40,601 people, or an increase of 6 percent. The bulk of the increase in
personnel occurred at the Ministry of Education, which employs 15,122 staff today, an increase
of 827 staff (mostly teachers in classrooms) over 2008 (or 5.8 percent). However, personnel
rosters in other ministries have grown faster in relative terms. The Ministry of Defense has
increased its personnel by 10.3 percent; the police by 16.3 percent, and Correctional Services by
12.9 percent. Together, these departments increased the combined size of their personnel by
1,303 staff.
8.
Wage levels in the civil service appear to be adequate, but not particularly high. While it
is difficult to find specific comparator tables for positions across all grades, there are
international comparator tables for the most common position in Swaziland’s civil service, that
of teacher. Graph 3 shows that Swaziland’s position in Africa does not point to an uncommon
situation: a primary school teacher in 2010 earns a yearly gross salary of about E90,000 (or
US$1,000 per month), excluding allowances and the public contribution to the pension fund.
Graph 5: Primary School Teacher Salaries as Percentage of GDP (2006)
4.4
3.2 (2010)
Angola
Sudan
Congo, Dem. Rep.
Guinea
Seychelles
Congo, Rep.
Chad
Zambia
Madagascar
Liberia
Mauritania
Swaziland (2010)
Uganda
Benin
Cameroon
Tanzania
Rwanda
Eritrea
Sierra Leone
Zimbabwe
Guinea-Bissau
Lesotho
Mali
Gambia, The
Ghana
Senegal
Cote d'Ivoire
Nigeria
Burkina Faso
Mozambique
Kenya
Niger
Malawi
Togo
Ethiopia
Central African…
Burundi
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Source: World Bank
9.
Other features of the civil service do not point to a particularly problematic situation.
The aggregate level of allowances is also relatively limited (at less than 10 percent of the overall
cost of the civil service). Allowances overall have increased modestly in absolute terms (from
1.35 percent of GDP in 2008/09 to 1.65 percent in 2010/11), but more significantly in relative
terms (by 22 percent over 3 years). This rate of increase is consistent with the increase in the
number of civil servants and the wage bill. The most important allowance (travel) accounts
consistently for 55 percent of all allowances.
10.
The highest earner in the civil service framework earns 21 times the salary of the lowest
earner. This ratio is not unusual. Moreover, the distribution of personnel between salary levels
does not point to an excessively top-heavy administration, as indicated by the four graphs below
for some of the largest employers within Swaziland’s administration. The bottom grades
6
account for the most staff for the police, correctional services and education (RSP2, HMC2, and
C3 respectively). However, for the Ministry of Health, the intermediate grade of C5 accounts for
most technical staff4.
Graph 6: Swaziland - Distribution of Staff between Grades in Select Departments
police staff distribution
correctional services staff distribution
HMC1
RSP1
HMC2
RSP2
HMC3
RSP3
HMC4
RSP4
HMC5
HMC6
RSP5
HMC7
RSP6
HMC8
RSP7
HMC9
HMC10
RSP8
HMC11
RSP9
HMC12
0
1000
2000
3000
0
education staff distribution
500
1000
1500
health staff distribution
A3
A6
B2
B5
CH5
C3
C6
D1
D4
D7
E3
E6
F3
A3
A6
B2
B5
CH5
C3
C6
D1
D4
D7
E3
E6
F3
0
2000
4000
6000
8000
0
200
400
600
800
1000
Source: Ministry of Public Service and World Bank Staff Calculation
4
Grade level A refers to non-technical staff (e.g. maintenance workers), and has a much lower salary range
7
Box 1: Is the public sector crowding out the private sector?
The 40,601 civil servants and assimilated (e.g. soldiers) account for about 20 percent of the employed population
(of about 198,000, as per the 2007 census); if the vast majority of these 40,601 civil servants are employed in the
two urban regions (which employ 120,000), then about one third of the urban population is comprised of civil
servants.
A simple decomposition of GDP figures indicates that the relative contribution of government to GDP has, over
the course of the past 18 years to 2008, steadily increased by more than 4 percentage points. During this period,
the services sector overall (of which government is part), has seen its contribution to GDP fall from 48.1 percent
to 44.4 percent. Given the increasing size of government, Swaziland has effectively witnessed a relative
contraction of its private services sector by almost 8 percentage points of GDP (from 32.8 to 25 percent) since
1990.
Another insight into whether the public service compares favorably as an employer comes from comparing the
public sector wage bill as a fraction of GDP (17.8 percent) with the portion of the active population employed in
the public service (about 20 percent). Figures about the contribution of capital to GDP are not available, if one
assumes conservatively that 20 percent of GDP accrues to capital (in the form of interest and dividend payments),
it becomes clear that the 20 percent of the active population in public service claims around a quarter of the wage
bill. Public service seems like an attractive proposition.
Graph 7: Swaziland Composition of GDP by Sector (in percent of GDP)
60.0%
50.0%
48.1%
44.4%
40.0%
30.0%
20.0%
19.4%
15.3%
10.0%
=
0.0%
1990
1995
primary
2000
secondary
tertiary
Source: CSO, World Bank
8
2005
of which gvt
3.
Frameworks and Processes
11.
The legal framework for the civil service (and the army) is provided by the Employment
Act of 1980 (as amended in 1985 and 1998), and the Wages Act of1964. The civil service is
structured in various career streams denoted by letters (A,B, C, etc.) and grades within these
streams (1, 2,3, etc.). Within each grade, there are notches (1,2,3, etc.) that have a specific
salary level associated with them. There are also ungraded positions, mainly senior ranks of the
civil service, ministers, parliamentarians, and other political positions5. The graded positions
make up more than 78 percent of the wages, with the army accounting for another 15 percent,
and the “politicians” for the rest. Annex1 provides a comprehensive overview of the framework
for grades and corresponding wages; Annex 2 documents the number of positions by grade and
function (i.e. department) over the past four years.
12.
The controlling legislation leaves significant discretion to the Government in the creation
or suppression of civil service positions and the manner in which it manages its staff. Under
current arrangements, line ministries that would like to create new positions need to secure the
approval of the Ministry of Public Service (MoPS). MoPS’ decision can, but need not, be
informed by considerations related to the aggregate headcount in the ministry or the civil service
as a whole. Once the position has been agreed, its grading (and “notching”) is defined and the
process of filling the position begins. For internal candidates at that precise grade level within
the line ministry a reassignment suffices; for civil servants in other ministries or at other grades,
and for external candidates if the position has been advertised externally, the Civil Service
Commission (created by the 2005 Constitution and independent of any other ministry) must
review their credentials on the basis of criteria such as “performance”. The creation or
suppression of positions in the army appears to be less subject to checks and balances. Defense
matters, including the hiring of soldiers, is under the direct control of the head of state.
13.
The civil service framework affords significant protections to public sector employees,
both formal and informal. Dismissals are rare, in the absence of a standardized performance
assessment system to gauge employee performance. While broad terms of reference exist for
each position, they are frequently not specific enough to generate accountability. Staff
reassignments that are unilaterally decided by management are more difficult without the civil
servant’s concurrence. Redeployments that are not jointly agreed are referred to consultations
with the unions, and trigger tedious processes that discourage unilateral decisions by
management.
14.
The wage increase mechanism is triggered annually, and is decided in consultation with
the unions. The increase that is decided by cabinet is applied evenly across all grade levels, up to
and including ministers. As a result, the ratios between various wage levels and between notches
at any one grade level always remain the same.
5
For the purposes of our analysis, we have included the 4,000+ soldiers among the ungraded civil servants,
although it is understood that the army has a distinct cadre for its personnel, which we were unable to access.
9
4.
Recent Reform Initiatives
15.
The Government had undertaken in the past 6 years two different reform efforts: one
Voluntary Early Retirement Scheme (VERS) and an Alternative Service Delivery (ASD)
reform. Since implementation in 2005 of the VERS began, there have been no takers despite
yearly budgeted amounts. An enhanced VERS, known as EVERS has been approved by
Government in the past year, with broader eligibility conditions, and more attractive exit
packages. However, it targets only 27 percent of staff in specific grades and departments, the
package has not been calibrated to account for non-cash benefits (e.g. housing), and its fiscal
implications remain to be determined. The ASD has allowed the outsourcing of some services
(cleaning and security of some buildings), but the quality of these services is reported to be
uneven. Its fiscal impact is reported to be limited.
5.
Issues
16.
The civil service framework of Swaziland stems from a fundamentally sound design that
seems to be broadly implemented as intended. It has especially benefitted from recent efforts by
the Ministry of Finance to eliminate ghost workers: 813 were identified and eliminated.
However, it faces a few serious issues, and the reforms that they may give rise to will be tested
by the need to achieve fiscal sustainability rapidly.
17.
Issue 1: Fiscal Sustainability
The overall cost of the civil service is exorbitant under Swaziland’s new macroeconomic
circumstances. It is a cause of fiscal imbalances that threaten one of the foundations of
development: macroeconomic stability. The wage bill is also by itself larger than the
Government’s domestic revenue (14.5 percent of GDP), which the Government may see
as a security issue.
18.
Issue 2: Control
The current wage increase mechanism lacks flexibility in various ways: (i) the salary
increase cannot reward performance; (ii) nor does it help cabinet in emphasizing the
attractiveness of employment conditions in departments that it would like to prioritize;
and (iii) it puts government negotiators in a conflict of interest, as they are de facto
arguing against their own salary increases.
19.
Issue 3: Allocative Efficiency
There may be allocative inefficiencies in the distribution of personnel between
departments. Recent hires have favored the security cluster over the social cluster.
While this is consistent with the explicit government policy of promoting security, it also
limits the Government’s ability to increase the pace of its hiring of new teachers to meet
its commitment to free primary education (a constitutional mandate). There will
10
inevitably be an important political element in this decision, but there may be scope to
reassess these trade-offs in light of changing circumstances.
20.
Issue 4: Productive Efficiency
Organizational effectiveness is compromised by the high wage bill. The high wage bill
throws the composition of expenditure across administrative line items out of balance, as
the Government undertakes cost saving measures that are primarily dictated by deficit
containment rather than the effective deployment of means to support development
policies.
21.
Issue 5: Social Stability
The civil service is probably the single largest employer in Swaziland, and by all
accounts an attractive employer. While it is desirable in the medium term to see a shift in
the labor force toward the private sector (to the benefit of both private and public
sectors), the transition toward this new allocation of labor will be difficult. There may be
short term rises in unemployment, and an increase in social instability.
6.
Options
22.
Managing the wage bill is a particularly important task, for two main reasons: (i) wages
are mandatory expenditure, and are typically not decided upon together with yearly budget
decisions; and (ii) wage increases and hiring decisions are rigid: they are difficult to reverse
when necessary and thus tend to crowd out other expenditure when resources are unavailable,
with adverse consequences for the government’s performance.
23.
Options can be organized in three broad categories: (i) structural reforms based on a
fundamental review of civil service effectiveness in various departments; (ii) administrative
reforms to help control the wage bill over the medium term; and (iii) immediate measures with a
direct impact on cash flow. The following options mostly cover the last two categories, for two
reasons: (i) there is not adequate analysis to argue for a detailed restructuring of the civil service,
and (ii) there is a need for relatively simple and uncontroversial options that could easily be
implemented. Options are discussed in more detail the box below.
Medium-Term options to reassert greater control over the wage bill
(a)
Broaden the mechanism by which positions are created to include the army. This will
allow for the management of all public servants within a given resource envelope, and
interrogate the need for new positions.
(b)
Disconnect the wage increase mechanism of senior ranks (top tier) of civil service or
political appointments from current wage increase mechanism. The top tier wage
increases should be decided by a more independent body such as an independent
commission (a common feature of Commonwealth countries) to alleviate the conflict
11
of interest of government wage negotiators. The Government may also want to
consider top tier wage negotiations on a different schedule from lower tier, so as to
limit its simultaneous handling of politically sensitive issues.
(c)
Split the lower tier salary increase in two distinct parts:
(i)
a base increase for all across all lower tier grade levels (with a view to
limit the overall increase in the nominal wage bill to inflation, at most);
this should help address staff concerns about cost-of-living;
(ii)
an additional salary increase based on passage from one notch to the next
within each grade level to reward performance (e.g. passage from one
notch to the next should not be automatic). The number of promotions
between notches will be constrained by availability of funding for the
additional costs of such promotions, and the attrition from the civil service
– so as to cap the overall increase in the wage bill to the level the
Government will deem appropriate. This recommendation implies that
passage from one notch to the next is not an automatic yearly occurrence,
but is a deliberate management decision. In this connection, the design
and roll-out of a comprehensive and systematic performance management
framework for promotions between notches is critical to provide
legitimacy to managers’ decisions. Such a systematic performance
management framework would also require the training of managers to
ensure that it is implemented widely and evenly.
(d)
Expand the notch system within any grade level (C1, C2, A4) to cover as many years
as a civil servant may contemplate within his or her career, and provide a greater
frequency in salary increases from selective promotions between notches. This
implies the need to determine the equivalent “notching” for all staff in the new
expanded notch range;
(e)
Reconsider the contribution of 15 percent of gross salary that the Government makes
to the public pension fund. The findings of the 2007 census confounded expectations
of populations growth, and may allow for the conclusion that the pension fund is
overcapitalized in light of its reassessed commitments. An in-depth assessment of the
financial health of the public pension fund would need to be undertaken;
(f)
Reconsider the various (20+) allowances policies selectively on a needs basis –
especially, but not only, the ones that give rise to current expenditures; to facilitate a
transition to a new allowance regime, consider a reform that may allow for the
grandfathering of certain allowances to current beneficiaries;
12
(g)
Consider lowering the pension age for various categories of civil servants. Some
categories of civil servants for which physical ability is part of the job requirements
could have a mandatory pensionable age well below the current age of 60. It will be
easier to implement such a differentiated retirement age for categories that fall in
different cadres, like the army.
Short- term options for scaling back the size of the civil service
7.
(a)
Assess the demand for the EVERS package as currently defined, and ensure that
packages compensate for actual loss of cash and non-cash benefits; to be able to do
so, the Government will need to compile a register of government housing (currently
inexistent), a register of civil servants who benefit from such housing; and a register
of civil servants who receive housing allowances;
(b)
Establish the fiscal impact of various scenarios under EVERS;
(c)
Deploy the EVERS program in tandem with an involuntary departure program; clear
communication by the authorities of their willingness to enforce a level of involuntary
retrenchment (based on criteria that include individual performance, but also the
suppression of obsolete positions) may trigger greater interest in the EVERS;
(d)
Facilitate the transfer of civil servants to new autonomous agencies (such as the
Revenue Authority) by providing the EVERS package as an unconditional guarantee
for a limited period of up to 2 or 3 years, but not an automatic right upon exiting the
civil service; this recommendation could also be applied to outsourcing through the
ASD program;
(e)
Eliminate lump sum pension payments under EVERS; they cause large cash outlays
and may not prevent beneficiaries from tapping public welfare funds in their old age.
Scenarios
24.
The need for far-reaching reforms with a rapid impact has been discussed with the
Government, the IMF and the World Bank in the context of missions during the past 2 years. The
path to macroeconomic stability under the existing peg arrangement requires a dramatic decrease
of the public deficit: from close to 15 percent of GDP in 2010/11 to just a third of that (5
percentage points of GDP) by 2013/14. The Government has already taken many of the
structural reforms that will improve revenue generation, such as the introduction of the VAT.
13
However, they are slated to take some time to have an impact, which in turn is difficult to
quantify with confidence. Therefore discussions with the Government and the IMF have also
pointed to the need to roll back public expenditure by 3.8 points of GDP: from 37.9 percent of
GDP in FY 2010/11 to 34.1 percent of GDP in FY2013/14.
25.
The composition of the expenditure roll-back matters. Emergency measures to contain
expenditure this year have disproportionately affected discretionary expenditure (i.e. goods and
services, and transfers and subsidies), and that public debt service will likely increase from 0.8
percent of GDP to 2.4 percent of GDP, resulting in an overall expenditure mix that is
unbalanced. Discussions therefore also concluded that the most important reduction in
expenditure over the medium term would need to come from the wage bill: by FY2013/14, the
wage bill would need to fall by 3.5 percentage points of GDP. The endeavor will be challenging,
but is necessary to reestablish balance between expenditure items.
26.
Even if successful, this reduction in the wage bill would still leave Swaziland with a
public service absorbing 14 percent of GDP in 2013/14. This is still high relative to the wage
bill in South Africa, which is projected somewhat in excess of 10 percent of its GDP. It is also
high in that it remains close to the level of non-SACU revenue (i.e. the revenue that Swaziland
has greater control over), which is projected to be 15.8 percent in 2013/14.
Graph 8: Swaziland – Projected Public Expenditure for Sustainable Fiscal Deficits
by Administrative Line Item
Public Expenditure in % of GDP
50
45
0.8
40
6.8
0.8
4.7
35
1
3.8
1.5
3.6
2.4
3.5
5.2
4.9
4.9
17.5
15.6
14.6
14
10.4
8.6
9.1
9.3
9.3
2009/10
2010/11
2011/12
2012/13
2013/14
9.2
30
6.4
25
20
17.3
15
10
5
0
Fiscal Year
Interest
Subsidies & Transfers
Goods & Services
Source: IMF, World Bank staff
14
Wages
Capital Expenditure
27.
To help devise measures with the necessary effect on the wage bill, various policy reform
options has been modeled based on a detailed recording of the full civil service framework6 –
with few limitative assumptions with which to qualify the projections. The decision variables
are the increases in the number of staff in the Education Sector (ES), the Health Sector (HS), the
“Security Cluster” Sector (SCS), and the remaining Other Sectors (OS) of the civil service, and
the increases in the various elements of the overall compensation packages for the same civil
servant categories. The real economic growth rate can also be adjusted, but is otherwise
assumed to be 2.5 percent p.a.. The inflation rate is projected at a constant 6 percent p.a..
28.
We have created five scenarios to illustrate the impact of the measures we propose, with a
view to bring the wage bill back to a level consistent with ongoing macroeconomic policy
discussion figures. Each of the scenarios draws on the previous one, and thus models an
increasing number of policy options we present above. The progression between scenarios is as
follows: (i) no notable reform – current situation; (ii) no new hires, nominal wage increases of
half the inflation rate across the board, and no further pension fund contribution; (iii)
differentiated nominal wage increases across departments, with higher wage increases and new
hires for the education sector, and a shrinking of security cluster positions in line with natural
attrition; (iv) same parameters as previous scenario, plus a one-off nominal wage reduction
across the board next year; (v) same parameters as previous scenario, with an additional
exceptional departure of civil servants in 2013 (and commensurate shrinkage of the number of
positions).
7.1.
Scenario 1: No Notable Reform to Current Expenditure Plans
29.
Under the first scenario, hiring of teachers to support the roll-out of education continues
apace (with 400 new hires each year until 2017), with salary increases of 6 percent p.a. that
compensate in full for increases in the cost of living. In this case, by 2017 the education sector
wage bill remains broadly steady at 6.7 percent of GDP, and the overall wage bill will have
decreased by more than 1 percentage point of GDP by 2017. The situation is an improvement,
but the high overall wage bill remains unsustainable: the wage bill would still be higher than
that of most other countries, and far larger than current domestic revenue.
6
The Bank team reconstructed the wage bill in Excel spreadsheets from the bottom up, on the basis of the civil
service establishment rolls and the wages associated with various positions, plus additional information from
pension statutes and the budget. The only department for which the number and grading of positions remained
unavailable was the army. On the basis of this bottom-up approach, the wage bill came to 17.9 percent of GDP, or
within 0.1 percentage points of the incremental approach adopted by the IMF.
15
Graph 9: Scenario 1 - Composition of the Wage Bill with no Notable Reform
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
16.7%
6.7%
4.7%
3.7%
1.6%
2011
7.2.
2012
2013
2014
TOTAL WAGE Bill as % of GDP
of which ES wage bill
of which HS wage bill
of which OS wage bill
Scenario 2:
2015
2016
2017
of which SCS wage bill
Broad Undifferentiated Reforms
30.
Under a second scenario illustrating a certain appetite for reform, all new net hires are
frozen, nominal wage increases are kept to half the prevailing inflation rate of 6 percent, and the
public pension fund contributions of 15 percent of gross salary are suspended indefinitely7. This
scenario (not illustrated) points to a sharp decrease in the size of the wage bill, to 12.9 percent of
GDP in 2017. Thus, with genuine reform efforts and austerity, the gap between the improving
real economic growth rate of 2.5 percent and the negative real increase in the overall wage bill
achieves a significant reduction in the wage bill. But it may be politically challenging, and does
not address the issue of allocative efficiency. Moreover, it may undermine the financial health of
the public pension system.
7.3.
Scenario 3:
Targeted Wage Bill Reduction over Time (by Department)
31.
Under a third scenario, the reform options we have suggested are put in place, allowing
for a differentiation between departments. A base wage increase of half the inflation rate is
provided to all personnel for all future years. An additional allocation equivalent to 4 percent per
annum for the average wage is provided to the Ministry of Education to facilitate promotions
between notches, raising its average wage increase to 7 percent per annum (higher than the
inflation rate). Moreover, 150 new teachers (net) are hired each year. Ministry of Health staff
get an additional average 3 percent wage increase to be administered through promotions
between notches, keeping their average purchasing power equal to the previous year’s. Other
civil servants get an additional wage increase of 2 percent p.a., except for personnel from the
security cluster, who get no additional wage increase. In addition, we have assumed that 1
7
This decision may cause the pension fund’s obligations to become unsustainable in the long run under current
pension benefits arrangements
16
percent of security cluster staff leave their positions each year without being replaced. Under
these assumptions, while the education sector wage bill remains steady at 6.5 percent of GDP,
the security cluster wage bill falls by 1.7 percent of GDP by 2017, while other departments’
modestly decreasing wage bills contribute to a combined impact on the overall wage bill of a
little under 3 percentage points of GDP over 6 years. The improvement is real and meaningful,
and priority sectors are protected. There are no mass layoffs, thus addressing the issue of social
stability. But the wage bill remains high by any standard.
Graph 10: Scenario 3 - Composition of the Wage Bill with Differentiation between Departments
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
15.1%
6.5%
3.7%
3.3%
1.6%
2011
7.4.
2012
2013
2014
TOTAL WAGE Bill as % of GDP
of which ES wage bill
of which HS wage bill
of which OS wage bill
Scenario 4:
2015
2016
2017
of which SCS wage bill
Scenario 3 Plus a One-Off Immediate Wage Cut
32.
Under a fourth scenario, all decision variables are identical to the previous scenario,
except for a one-off 5 percent wage reduction in 2012 across the board: an order of magnitude
comparable to what the Greek civil service experienced in 2010 (an less than 7 percent average
wage cut that the Irish civil service experienced in 2009). Such an option precipitates the
reduction in the overall wage bill over time without compromising a selective differentiation
between ministries over time. Moreover, the overall wage bill comes down to a more
manageable 14.2 percent in 2017 (a level comparable to current domestic revenue levels),
although that may not be fast enough.
17
Graph 11: Scenario 4 - Composition of the Wage Bill with Differentiation between Departments and a
One-off Nominal Wage Cut
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
14.2%
5.5%
4.0%
3.3%
1.4%
2011
7.5.
2012
2013
2014
TOTAL WAGE Bill as % of GDP
of which ES wage bill
of which HS wage bill
of which OS wage bill
Scenario 5:
2015
2016
2017
of which SCS wage bill
Scenario 4 Plus Personnel Attrition in Select Departments
33.
Under a fifth scenario, all decision variables remain the same as for the previous scenario
(including the wage cut), but an additional five percent of civil servants leave their positions in
2013 from within all departments other than the ministries of health and education. The overall
impact effectively brings the wage bill down further by one percentage point of GDP in 2017,
while preserving the number of positions and wage levels in the social sectors. Sustainability is
further promoted by the initial rapid decrease in the wage bill. However, the wage bill in this
scenario does not reflect the one-off retrenchment costs that may be present.
Graph 12: Scenario 5 - Composition of the Wage Bill with Differentiation between Departments, a
One-off Nominal Wage Cut, and a One-off Retrenchment
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
13.2%
5.5%
3.8%
2.6%
1.4%
2011
2012
TOTAL WAGE Bill as % of GDP
of which HS wage bill
2013
2014
of which ES wage bill
of which OS wage bill
34.
2015
2016
2017
of which SCS wage bill
Finally, it is worth stressing that in a situation identical in all assumptions to the previous
one in its decision variables, an increase in the growth rate by 1 percent p.a. (to 3.5 percent) has a
18
significant effect on the wage bill as a percentage of GDP. The impact is favorable and
significant (with an overall wage bill falling by an extra 0.7 percentage points of GDP). The
implicit assumption under the model is that the additional growth comes from the private sector,
which over time grows comparatively larger.
Graph 13: Scenario 5 in a Higher Growth Context
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
12.5%
5.2%
3.6%
2.4%
1.3%
2011
2012
TOTAL WAGE Bill as % of GDP
of which HS wage bill
7.6.
2013
2014
2015
of which ES wage bill
of which OS wage bill
2016
2017
of which SCS wage bill
Conclusion
35.
The compounding of the reforms under the above scenarios indicates that Swaziland will
only be able to achieve a sustainable fiscal path under the more ambitious reform agenda,
encompassing one-off immediate reductions in wages and positions, and selective and
differentiated increases looking forward. This agenda will need to include structural measures
that modify the wage framework (i.e. number of notches, dual wage increase mechanism) and
one-off measures such as the nominal wage reduction and the proposed retrenchment under
EVERS. The upside from implementing this approach is that the efficiency gains are possible
without compromising the effectiveness of the civil service, and the pursuit of the most
important policy objectives of the government: universal and free primary education and a high
level of security.
19
20
Annex 1
Wages by grade level and notch, in Emalangeni, for the four previous years.
Grade
Notch
A
1
A
2
A
3
A
4
A
5
A
6
A
7
1
2
3
4
5
6
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
2008
15,712
16,183
16,668
17,172
17,682
18,213
18,921
21,077
23,606
26,439
29,610
31,683
32,634
33,612
34,621
35,660
38,155
39,301
40,479
41,694
42,945
45,951
47,330
48,749
50,212
51,718
54,303
55,933
57,611
59,339
61,120
64,176
66,100
68,084
70,127
72,230
2009
17,362
17,882
18,418
18,975
19,539
20,125
20,908
23,290
26,085
29,215
32,719
35,010
36,061
37,141
38,256
39,404
42,161
43,428
44,729
46,072
47,454
50,776
52,300
53,868
55,484
57,148
60,005
61,806
63,660
65,570
67,538
70,914
73,041
75,233
77,490
79,814
21
2010
19,445
20,028
20,628
21,252
21,883
22,540
23,417
26,085
29,215
32,721
36,645
39,211
40,388
41,598
42,847
44,133
47,221
48,639
50,097
51,600
53,149
56,869
58,576
60,332
62,142
64,006
67,205
69,223
71,299
73,438
75,642
79,424
81,805
84,261
86,789
89,392
2011
20,320
20,929
21,557
22,208
22,868
23,555
24,470
27,259
30,529
34,193
38,294
40,975
42,205
43,470
44,775
46,119
49,346
50,828
52,351
53,923
55,540
59,428
61,212
63,047
64,939
66,886
70,230
72,338
74,508
76,743
79,046
82,998
85,487
88,052
90,695
93,414
Grade
Notch
B
1
1
2
3
4
5
2008
28,451
29,304
30,183
31,089
32,022
B
2
B
3
B
4
B
5
B
6
B
7
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
33,623
34,631
35,670
36,740
37,843
40,492
41,707
42,958
44,246
45,575
48,765
50,228
51,735
53,287
54,884
58,727
60,489
62,303
64,171
66,098
70,725
72,847
75,032
77,283
79,601
85,173
87,729
90,359
93,071
95,863
2009
31,438
32,381
33,352
34,353
35,384
2010
35,211
36,267
37,354
38,476
39,630
2011
36,795
37,899
39,035
40,207
41,414
37,153
38,267
39,415
40,598
41,817
44,744
46,086
47,469
48,892
50,360
53,885
55,502
57,167
58,882
60,647
64,893
66,840
68,845
70,909
73,038
78,151
80,496
82,910
85,398
87,959
94,116
96,941
99,847
102,843
105,929
41,612
42,859
44,145
45,469
46,834
50,113
51,617
53,165
54,759
56,404
60,352
62,162
64,027
65,948
67,924
72,681
74,861
77,106
79,418
81,803
87,529
90,155
92,860
95,645
98,514
105,410
108,573
111,828
115,185
118,640
43,484
44,788
46,132
47,516
48,942
52,368
53,939
55,557
57,223
58,942
63,067
64,959
66,908
68,916
70,981
75,951
78,230
80,576
82,992
85,484
91,468
94,212
97,038
99,949
102,947
110,154
113,459
116,861
120,368
123,979
22
Grade
Notch
C
1
1
2
3
4
5
2008
42,970
44,260
45,587
46,955
48,364
C
2
C
3
C
4
C
5
C
6
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
53,199
54,796
56,439
58,132
59,876
64,068
65,990
67,970
70,009
72,109
77,157
79,471
81,855
84,312
86,841
92,919
95,707
98,579
101,536
104,582
115,211
118,667
122,228
125,895
129,672
2009
47,482
48,907
50,374
51,885
53,442
2010
53,180
54,776
56,418
58,112
59,855
2011
55,573
57,241
58,957
60,727
62,549
58,785
60,550
62,365
64,236
66,163
70,795
72,919
75,107
77,360
79,680
85,258
87,815
90,450
93,165
95,959
102,675
105,756
108,930
112,197
115,563
127,308
131,127
135,062
139,114
143,288
65,839
67,816
69,849
71,944
74,103
79,291
81,669
84,120
86,643
89,242
95,490
98,353
101,304
104,345
107,474
114,997
118,447
122,001
125,661
129,431
142,585
146,862
151,269
155,808
160,482
68,802
70,867
72,992
75,182
77,437
82,859
85,344
87,905
90,542
93,258
99,787
102,779
105,862
109,040
112,311
120,171
123,777
127,491
131,316
135,255
149,001
153,471
158,076
162,819
167,704
23
Grade
Notch
D
1
1
2
3
4
5
2008
79,097
81,469
83,914
86,431
89,024
D
2
D
3
D
4
D
5
D
6
D
7
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
90,961
93,691
96,501
99,396
102,378
104,606
107,744
110,976
114,305
117,734
120,296
123,905
127,623
131,451
135,394
138,340
142,491
146,766
151,169
155,704
159,917
164,715
169,657
174,747
179,989
193,127
198,922
204,890
211,037
217,367
2009
87,402
90,023
92,725
95,506
98,372
2010
97,890
100,826
103,852
106,967
110,176
2011
102,296
105,363
108,525
111,781
115,134
100,512
103,529
106,634
109,833
113,128
115,590
119,057
122,628
126,307
130,096
132,927
136,915
141,023
145,253
149,610
152,866
157,453
162,176
167,042
172,053
176,708
182,010
187,471
193,095
198,888
213,405
219,809
226,403
233,196
240,191
112,573
115,952
119,430
123,012
126,703
129,460
133,344
137,344
141,464
145,708
148,878
153,345
157,946
162,684
167,564
171,210
176,347
181,638
187,087
192,699
197,913
203,851
209,968
216,267
222,754
239,014
246,186
253,572
261,179
269,013
117,639
121,170
124,804
128,548
132,405
135,286
139,344
143,524
147,830
152,264
155,578
160,245
165,054
170,005
175,104
178,914
184,282
189,811
195,506
201,371
206,819
213,025
219,416
225,999
232,778
249,770
257,264
264,983
272,932
281,119
24
Grade
Notch
E
1
1
2
3
4
5
2008
127,357
129,409
133,515
137,755
142,140
2009
140,729
142,997
147,534
152,219
157,065
2010
157,617
160,157
165,238
170,486
175,912
2011
164,710
167,364
172,674
178,157
183,829
E
2
E
3
E
4
E
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
152,065
152,864
156,844
160,929
165,129
173,443
177,978
182,637
187,421
192,339
225,036
231,786
238,740
245,901
253,279
258,217
265,964
273,945
168,032
168,915
173,313
177,827
182,468
191,655
196,666
201,814
207,100
212,535
248,665
256,124
263,808
271,721
279,873
285,330
293,890
302,709
188,196
189,184
194,110
199,166
204,364
214,653
220,266
226,032
231,952
238,039
278,505
286,858
295,465
304,327
313,458
319,569
329,157
339,034
196,664
197,698
202,845
208,128
213,560
224,312
230,178
236,203
242,390
248,750
291,037
299,767
308,761
318,022
327,564
333,950
343,969
354,291
E
6
1
290,451
320,948
359,462
375,638
25
Grade
Notch
F
1
1
2
3
2008
218,608
225,165
231,920
2009
241,562
248,807
256,272
2010
270,549
278,664
287,024
2011
282,724
291,204
299,940
F
2
1
2
3
255,113
262,765
270,649
281,900
290,355
299,067
315,728
325,198
334,955
329,936
339,832
350,028
F
3
1
297,713
328,973
368,450
385,030
F
4
1
327,483
361,869
405,293
423,531
26
Grade
HMCS
Notch
1
HMCS
2
HMCS
11
HMCS
3
HMCS
12
HMCS
4
HMCS
5
1
2008
35,410
2009
39,128
2010
43,823
2011
45,795
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
1
2
3
4
5
6
1
2
3
4
5
1
2
3
4
1
2
3
4
58,551
60,313
61,117
63,980
65,901
67,878
69,913
72,011
74,172
76,397
67,334
69,354
71,435
73,578
75,786
78,690
81,050
83,481
85,986
88,564
91,220
90,492
93,206
96,003
98,883
101,850
109,303
111,821
115,876
118,630
137,354
141,474
145,718
150,089
64,699
66,646
67,534
70,698
72,821
75,005
77,254
79,572
81,960
84,419
74,404
76,636
78,936
81,304
83,744
86,952
89,560
92,247
95,015
97,863
100,798
99,994
102,993
106,083
109,266
112,544
120,780
123,562
128,043
131,086
151,776
156,329
161,018
165,848
72,463
74,643
75,638
79,182
81,559
84,006
86,524
89,121
91,795
94,549
83,333
85,833
88,408
91,060
93,793
97,387
100,307
103,316
106,416
109,607
112,894
111,993
115,352
118,813
122,378
126,050
135,273
138,390
143,408
146,816
169,989
175,088
180,341
185,750
75,724
78,002
79,042
82,745
85,229
87,786
90,418
93,131
95,926
98,804
87,083
89,695
92,386
95,158
98,013
101,769
104,821
107,965
111,205
114,539
117,974
117,033
120,543
124,160
127,885
131,722
141,361
144,617
149,862
153,423
177,639
182,967
188,456
194,109
27
HMCS
6
8
1
2
3
4
1
2
3
4
1
172,604
177,782
183,115
188,609
210,490
216,805
223,309
230,009
257,891
190,727
196,449
202,342
208,413
232,591
239,570
246,756
254,160
284,970
213,615
220,023
226,623
233,422
260,502
268,318
276,367
284,659
319,166
223,227
229,924
236,821
243,927
272,225
280,392
288,804
297,469
333,528
HMCS
7
HMCS
HMCS
9
1
281,101
310,617
347,891
363,546
HMCS
10
1
297,713
328,973
368,450
385,030
28
Grade
RSP
Notch
1
2008
35,410
2009
39,128
2010
43,823
2011
45,795
1
RSP
2
8
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
58,551
60,313
61,117
63,980
65,901
67,878
69,913
72,011
74,172
76,397
78,690
81,050
83,481
85,986
88,564
91,220
109,303
111,821
115,176
118,630
137,354
141,474
145,718
150,089
172,604
177,782
183,115
188,609
210,490
216,815
223,309
230,009
257,891
64,699
66,646
67,534
70,698
72,821
75,005
77,254
79,572
81,960
84,419
86,952
89,560
92,247
95,015
97,863
100,798
120,780
123,562
127,269
131,086
151,776
156,329
161,018
165,848
190,727
196,449
202,342
208,413
232,591
239,581
246,756
254,160
284,970
72,463
74,643
75,638
79,182
81,559
84,006
86,524
89,121
91,795
94,549
97,387
100,307
103,316
106,416
109,607
112,894
135,273
138,390
142,542
146,816
169,989
175,088
180,341
185,750
213,615
220,023
226,623
233,422
260,502
268,330
276,367
284,659
319,166
75,724
78,002
79,042
82,745
85,229
87,786
90,418
93,131
95,926
98,804
101,769
104,821
107,965
111,205
114,539
117,974
141,361
144,617
148,956
153,423
177,639
182,967
188,456
194,109
223,227
229,924
236,821
243,927
272,225
280,405
288,804
297,469
333,528
RSP
3
RSP
4
RSP
5
RSP
6
RSP
7
RSP
RSP
9
1
281,101
310,617
347,891
363,546
RSP
10
1
297,713
328,973
368,450
385,030
29
Annex 2
Positions by grade level and department, for the four previous years.
30
31
32
33