Namibia’s public sector wage bill swallows nearly half of the national budget and 16% of the country’s Gross Domestic Product.
Not only is this way out of line with other emerging economies, it is extreme by virtually any degree – including developed economies.
Treasury last year announced that the public sector wage bill, which now stands at 49% of all non-interest expenditure, has been a major driver for increased public expenditure.
The 2017 wage bill was budgeted at N$28 billion out of a total budget of N$62 billion. It increased by N$4 billion from 2016.
To put this into perspective, the meteoric rise of the wage bill from N$7,8 billion in 2009 to N$22 billion in 2014 speaks volumes of the wage bill crisis Namibia finds itself in.
With government having admitted that it can no longer afford the ballooning public sector wage bill, the central bank believes the remedy to the situation is a massive private sector job creation drive. This would require government to abandon policies and practices that stood in the way of investment and job growth.
Bank of Namibia governor Ipumbu Shiimi, although indicating that the domestic economy is expected to start recovering slowly in 2018, cautioned that the public wage bill is of concern because it is relatively high when compared to similar-sized economies as well as bigger economies.
Shiimi wants national spending to be redirected to areas that support growth.
He said: “Spending money on consumption growth is not sustainable, therefore government must ensure that it provides a conducive environment to unlock private sector growth.”
Shiimi reiterated that added investment is required in sectors such as agriculture, transport and tourism.
“There is probably no ideal level because the economic situation differs from country to country, but I would say anything between 9% and 10% would be ideal for Namibia. But I can say with certainty that where we currently find ourselves is not the right level. But it is clear that the policy makers have taken note of the situation, hence measures are being taken to address the situation,” said Shiimi.
The public sector wage bill in Namibia is, by any measure – be it by SADC levels or by global measures – at the far end of the spectrum.
Whether compared to similar-sized economies, emerging markets, or even advanced economies that tend to have high levels of current spending, the wage bill as a percentage of government spending is one of the highest in the world and is creeping steadily higher.
Shiimi warned that consumption-led growth is not sustainable, and should therefore be avoided.
Unions have in recent years been blamed for causing the ballooning of the wage bill.
Negotiation between government and unions representing public servants appear to have pushed up the wage bill over the years.
Shiimi yesterday unions seem to be on the same page as policy makers as far as the public wage bill is concerned.
Another example is that of the N$4 billion increase between 2016 and 2017.
Economists, ratings agencies as well as the International Monetary Fund(IMF)have been sounding the alarm over the ballooning public sector wage bill for years. Government is attempting to shave the headcount by leaving non-critical vacancies in some departments unfilled, but this is not enough.
IMF’s Mission Chief for Namibia, Geremia Palomba last year warned that Namibia’s wage bill and the high inequality levels should be addressed in order to maintain the country’s macroeconomic stability and it should fight inequality.
“Whatever policy comes up with should not be to the detriment of fighting inequality. From this point of view, The Ministry of Finance and BoN have worked on it by pushing to reduce the deficit and the central bank has a strong hand on supporting financial stability to avert any financial risk,” said Palomba during a working visit to Namibia last year.
Namibia is currently going through a demographic transition, by 2050 more than 60% of the population will be in the working age group, this will require the country to start thinking ahead by coming up with policies to cater for the high influx of entrants into the working age group.
This calls for an expanded labour market, mainly because the absence thereof could lead to high unemployment levels or an influx of personnel into the civil service.