Wage policy and fiscal sustainability in Benin / Charlotte Lundgren. - Washington, D.C. : International Monetary Fund, 2010.
p. ; cm.
Includes bibliographical references.
1. Wages—Benin. 2. Wages—Government policy—Benin. 3. Civil service—Salaries, etc.— Benin. 4. Fiscal policy—Benin. 5. Debts, Public—Benin. I. International Monetary Fund. II. Title. HD5096.3.L86 2010
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This paper analyzes the impact of Benin’s public wage policy on medium-and long-term fiscal and debt sustainability.1 From 2000 through 2009, the wage bill in Benin grew on average by 9.6 percent annually in real terms; meanwhile average real GDP growth was 4.2 percent. From 2007 to 2009, wage bill growth accelerated to an average of 14.7 percent per year in real terms. While Benin’s wage bill as a share of tax income was for quite some time in the mid-range among the WAEMU countries, at 45.1 percent of revenue it is now in the upper range and well above the WAEMU convergence criterion of a 35 percent maximum.
The main findings of this study are that if the wage bill continues to increase in line with recent trends,2 it would compromise debt and fiscal sustainability over the medium to long-run by generating excessive deficits or by crowding out growth-enhancing public investment. The study shows that with a fiscal policy guided by targets set in order to maintain debt sustainability, population growth, and the intent to progress towards the Millennium Development Goals, there will only be little space for civil service pay increases. Similarly, complying with the WAEMU convergence criteria will require a trade-off between the number of staff and real wage increases.
Limiting wage bill increases to maintain fiscal sustainability is only a first step in the authorities’ broader objective of reforming the civil service.3 Essential to more effective delivery of public services will be the ability to attract, retain, and motivate well qualified civil servants. This paper deals only with the fiscal sustainability effects of the total wage bill and the immediate need to contain total costs. However, in the medium term a comprehensive civil service reform will be necessary once the study of the civil service remuneration system commissioned by the authorities currently underway is completed.