1

The Challenges of Pay Reform in

Zambia

Managing the Payroll and the Establishment

2

Pay has fallen.Pay scales have compressed.

Sources: Colcough, 1997, Tables 4.9 – 4.11; Directorate of Personnel; Republic of Zambia, 2001c; and Calculations.

3

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, MoFED.

4

Allowances significantly add to the salaries, especially at the top.

Source: Data Centre, Ministry of Finance and Economic Development

5

PD CODE Category of Compensation Amount Number of Average Payment Recipients per Request

2 Flexible Allowances 2.3 Housing Allowances 69,563,233 150 463,755 2.148 Local Supplementation Allowance 6,131 7 876

Sub-Total 69,569,364 157 443,117 3 Fixed Allowances 3.17 Tool Allowance 29,692,642 1,958 15,165 3.39 Instructors Allowance 358,720 180 1,993 3.43 Machine Allowance 1,500 3 500 3.47 Grade Allowance 75 54 1 3.51 Amourer Allowance 24,485 46 532 3.53 Bandsman Allowance 820 38 22 3.55 Coxwains Allowance 42,116 6 7,019 3.57 Dog Handler Allowance 1,675 8 209 3.59 Equitation Allowance 678 12 57 3.63 Mental Allowance 10,019 6 1,670 3.67 Trade Testing Allowance 8,284 11 753 3.94 Body Guard Allowance 44,552 199 224 3.96 Finger Print Expert Allowance 29,032 102 285 3.98 Protect. Unit Kilometre Allowance 11,745 261 45 3.102 Danger Risk Allowance 19,820,263 13,134 1,509 3.153 Non Private Practising Allowance 153,020,962 110 1,391,100 3.163 Medical Allowance 5,300,210 55 96,367 3.165 Telephone Allowance 4,549,638 56 81,244 3.167 Entertainment Allowance 6,037,206 54 111,800 3.169 Motor Vehicle Allowance 5,424,394 57 95,165 3.171 Drivers Allowance 5,830,998 59 98,830 3.173 Secretarial Allowance 10,891,992 55 198,036

Sub-Total 241,102,004 16,464 14,644 Grand Total 310,671,368 16,621 18,691

Allowances Proposed for Consolidation or Elimination

Imagination is needed in the design of allowances.

6

There are 26 salary scalesWithin the structure there are 185 salary gradesSome job scales contain few grades, some just one, with few personnel within themFor many grades, average differentials are 1 per cent or lessThus increments regards as rights, contributing to salary creepThe proliferation took place when the economic crisis limited the potential to salary increasesZambia now moving to 26 job-grade scales

Then employment structure is very fragmented

7

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

8

1998 1999 2000 2001

GDP market prices 6,028.60 7,411.50 9,087.000 11,715.289Total Re-current Expenditures excl. debt service 1,139.41 1,237.72 1,533.400 2,237.620Total Wage Bill l319.52 392.81 538.300 738.063Public Service Wage Bill 231.01 284.00 387.576 491.716

Expenditures/GDP % 18.90% 16.70% 16.87% 19.10%Total Wage Bill/GDP % 5.30% 5.30% 5.92% 6.30%Public Service Wage Bill/GDP % 3.83% 3.83% 4.27% 4.55%

Total Wage Bill/Exp % 28.04% 31.74% 35.10% 32.98%Public Service Wage Bill/Exp % 20.27% 22.95% 25.28% 21.97%

Annual rate of increase in Public Service Wage Bill 24.50% 26.80% 30.10% 18.70%Annual Inflation rate -1.90% 2.02% 3.47% 5.20%

Source: Republic of Zambia, 2001a; International Monetary Fund, 1999; International Monetary Fund, 2001, Standard Bank, 2002; and Price Waterhouse Coopers, 2002.

Expenditures and Wage Bill Trends Relative to GDP, 1998 - 2001 (Kwacha in Billions)

The wage bill is a focus of policy concern.It is on a rising trend (everywhere).

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

Composition of the Wage BillThe share of total resources being consumed at year-end 2002

Defense/Intelligence/Police

39%

Classified Employees (in non-Defense/Security)

3%

Autonomous and Grant-aided Institutions

(including Health Boards)18%

All other Civil Service7%

Education26%

Foreign Affairs7%

Figure 1

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Institution PE’s in Cash Payroll Comments Yellow Release managed Book for PE’s by MoF

Electoral Commission X X Viewed as autonomous but funded as PE’s rather than grants

Judiciary X X X Is supposed to be treated as autonomous, i.e., grant-funded in future

Anti-Corruption Commission X X X Is supposed to be treated as autonomous, i.e., grant-funded in future

National Assembly X X Viewed as autonomous but funded as PE’s rather than grants

Human Rights Commission X X Viewed as autonomous but funded as PE’s rather than grants

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

Ministry of Commerce X X X Represents status of most ministries.

ZRA Completely autonomous

Defense X X Payroll managed independently, so data is lacking

Intelligence X X Payroll managed independently, so data is lacking

Note the varying responsibilities for different parts of the establishment.

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Projections of Recurrent Expenditures and Wage Bill Relative to GDP, 2001 – 2007 (Kwacha in Billions)

Categories 2001 2002 2003 2004 2005 2006 2007

GDP market prices 11,715.29 13,585.05 15,470.65 17,541.02 19,799.42 22,036.76 24,526.90Recurrent Expenditures excl. debt service 2,237.62 2,350.21 2,630.01 2,981.97 3,365.90 3,746.25 4,169.57Total Wage Bill 738.06 842.27 959.18 999.84 1,128.57 1,256.10 1,398.03Public Service Wage Bill 491.72 608.96 693.49 722.88 815.95 908.16 1,010.78

Expenditures/GDP % 19.10% 17.30% 17.00% 17.00% 17.00% 17.00% 17.00%Total Wage Bill/GDP % 6.30% 6.20% 6.20% 5.70% 5.70% 5.70% 5.70%Public Service Wage Bill/GDP % 4.55% 4.48% 4.48% 4.12% 4.12% 4.12% 4.12%

Total Wage Bill/Exp % 32.98% 35.84% 36.47% 33.53% 33.53% 33.53% 33.53%Public Service Wage Bill/Exp % 21.97% 25.91% 26.37% 24.24% 24.24% 24.24% 24.24%Annual Inflation rate 18.70% 13.00% 11.00% 10.00% 9.00% 7.50% 7.50%GDP Real Growth Rate 5.20% 4.00% 4.00% 4.50% 5.00% 5.00% 5.00%

Source: International Monetary Fund, 2001, Standard Bank, 2002; Price Waterhouse Coopers, 2002; and projections.

The Government decided to introduce a sustainable medium term pay reform policy.

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Wage Bill/GDP Ratio Employment Trends Salary Structure

Scenario 1 The Wage Bill/GDP ratio declines Size of the public service New salary structure from 6.2% in 2002 to 5.7% in 2003 remains constrained introduced. Salary differentials and remain constant thereinafter. at 2001 level. (increment and grade differentials)

remain constraint through the period.

Scenario 2 Same as Scenario 1. Size of the public service New salary structure introduced. reduced in line with the KPMG Salary differentials (increment and report recommendations. 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. 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.

Cabinet approved a policy involving: Decompression Retrenchment Folding allowances into pay (scenario 4)

Scenarios Assumptions Matrix

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Current Headcount Current Estimate Original MTPRS of Annual Wage Bill Estimate of Wage Bill

Civil Service 119,373 901.2 billion 609.0 billion

Defense, Intelligence, National Assembly n/a 463.3 billion 233.3 billion

But the policy was immediately knocked off course!

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But perhaps has been some sustainable progress:

The payroll and the establishment will soon be a single database; a major payroll cleansing exercise has been carried out

Some allowances have been eliminated

The number of salary scales has been reduced from 26 to 6

The number of salary grades from 185 to 68

For the first time the Government had a medium term policy when it went into the negotiations with the unions

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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!”

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  Public Sector Private Sector

Salary Subsidies Benefits Total Salary Subsidies Benefits Total

Teachers 4.013.561 1.877.958 1.275.000 6.025.771 9.880.000 743.056 650.000 10.585.833

Nurses 2.013.589 170.342 1.200.000 2.762.638 6.000.000 500.000 575.000 7.075.000

Others 4.418.811 2.685.716 2.996.411 8.652.996 20.242.096 6.619.972 2.985.440 28.679.282

Mozambique (meticais)

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 Civil

Service SLComm BankStan Chart

BankRokel Comm

BankBSL (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 LevelSupport 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

Sierra Leone (Leones) – Salary plus allowances