Article compiled by SARFED
Since 2016, The Kingdom of Eswatini has not reviewed its salary framework for its labour force despite the socio-economic challenges that the country has faced, both from within and outside the country. Against this backdrop, the process has since been suspended following technical reasons among responsible institutions. The outcome of this decision has a cost effect on the country’s fiscal space through annual budgetary plans for 2023/4. This article gives a brief analysis of the implication of this decision made by the Government.
Eswatini’s national budget for the 2023/4 process is faced with an aggressive dilemma of resource optimization as it is expected to strike a balance among three fundamental obligations namely: peace and tranquillity of the nation, financing a viable parliamentary election year and maintaining a stable economic growth agenda.
The Government of Eswatini has over 40, 000 employees across various sectors. However, the country experienced several socioeconomic challenges from 2016 until 2022 which have contributed to the increase in basic living costs for an average Liswati. Inflation levels have not been stable due to a rise in uncertainty on both local and international markets, induced by geopolitical tension in Europe, the COVID-19 pandemic, as well civil political challenges the country has been subjected to since 2021.
Currently, the inflation forecast for 2022 has been revised up to about 5.2 per cent from about 4.1 per cent with a possible result of market imbalance. This disequilibrium in economic performance has exerted pressure on other viable economic sectors whose one of the imminent ripple effects was that of an increase in poverty levels, especially within urban areas. Currently, Eswatini’s poverty rate is about 28.5 per cent with a consumption per capita Gini index of 54.6 since the year 2017 which was also a reflection of high inequality levels), hence increasing the nation’s vulnerability to economic shocks is also felt under the pretext of increase in unemployment level, especially among youths which were currently at about 50 per cent.
Weakening purchasing power
The biggest challenge is not in the salary itself as a whole but with the purchasing power that civil servants were subjected to, and unfortunately, Eswatini like its major economic partner, South Africa has been faced with reduced economic activity for almost five years now due to both national and global inflationary issues. Some of the major costs of reduced or weakening purchasing power include shrinking economic activities, and loss of house savings, among other social-economic costs.
In fact the more the public sector is faced with weak purchasing power, the more expensive basic goods and services would be on both medium and long-term basis because of the massive reduction in production levels. This is a mechanism which markets create as a way of maximizing their resources under markets faced with weakening consumption patterns. This would automatically bring about contractionary measures working against economic growth.
Compromised national budget
We all know that the fiscal sustainability of any country depends on the country’s fiscal prudence as determined by its national budget.
With the case of Eswatini, since the civil servants are the largest human capital in the country with the equally largest share of government spending (both direct and indirect), we expect to experience a situation where its fiscal position could be inefficient in terms of resource allocation and sustainability. There will be an imbalance between the country’s revenue and expenditure balances.
Poor tax policy
One of the possible opportunity costs that government is likely to face as a result of delayed salary review is that of diversification of the tax framework. Through a proportional tax system as well as others such as income and sales tax, the government is likely to suffer much loss as these structures could not effectively be both determined and attained at the same time. For example, if appropriate statistics are in place, it would be easy for Government to diversify the tax base, making it more inclusive at the same time.
The trade Unions in Eswatini are known for mass protests against several imbalances caused by Government’s decision regarding fiscal issues. One of the common ones is the Cost-of -adjustment (CoLA) which has been a call for concern over two to three years due to acute contractionary changes in economic performance, mainly caused by exogenous factors. With delayed salary reviews, such tensions are expected to continue at the expense of the country’s tranquillity and global image of peace and stability.
One of the biggest microeconomic effects that could be expected from the Government’s delayed salary review is that of underpaid low-skilled workers, mainly domestic workers who could be employed by civil servants. The ripple effect of such developments could be that of social tension and the widening of the inequality gap among social classes.
Research depicts that engaging once-off consultants on such exercises whose nature is longitudinal could bring about the manifestation of corruption-related acts among key stakeholders. At the same time, this could bring about a failure to have consistent data trends for policy evaluation. This would ultimately attract more political influence which was also subjective, and no structural or institutional reasoning which was more objective.
- Salary review to be a continuous and sectorial activity: Conducting a sectorial salary review would be best and ideal if Government made it a process of continuous improvement and not one activity. This is due to its nature of complexity. Therefore, it would be cost-effective if this exercise was taken regularly, with the sector-specified approach. Issues of public sector wage bills remain to be one of the most dynamic variables in the determinant of economic variability, hence the need for a cyclical approach in use towards it. The constant review on a longitudinal basis would also help in establishing a constant flow of information which would give ideal checks and balances approaches to influence cost-effective and robust decision-making by the policymakers. In this regard, Government can still put in place a result-based monitoring and evaluation framework for effective management of the country’s labour force.
- Government to form a parallel institution for salary review: The government can also set aside an independent institution as a form of ad-hoc committee with its stakeholder, mainly the Trade Unions to be conducting an ongoing process of public sector salary adjustment and reviews. This parallel exercise would reduce the delays caused by over-dependency on external consultation on such cyclical matters.