Abstract

Benin’s Civilian Central Government (excluding education, health, and police) is organized into a career structure with five employment grades, each divided into multiple levels. Within grades employees ascend automatically after two years at each level. Once at the top of an employment grade, a promotion is required to move to the next grade. The number of promotions is limited by predetermined percentages (from 40 percent to 10 percent for the intermediary to the outstanding grade).

Benin

1. Size and Structure of Civilian Central Government

Benin’s Civilian Central Government (excluding education, health, and police) is organized into a career structure with five employment grades, each divided into multiple levels. Within grades employees ascend automatically after two years at each level. Once at the top of an employment grade, a promotion is required to move to the next grade. The number of promotions is limited by predetermined percentages (from 40 percent to 10 percent for the intermediary to the outstanding grade).

By moving up one level, a civil servant typically receives a double-digit salary increase. The system of nonwage benefits can increase base salary by as much as 50 percent.

2. Key Institutional and Structural Concerns

Among the institutional concerns confronting Benin’s civil service are the following:

  • Promotion. Advancement has not been tied to performance. (Although promotions have been scarce due to budgetary constraints, within a grade a civil servant can expect to climb all the steps of the ladder over a 24-year career and get a salary increase at each step.) Appointments to management positions are frequently based on political ties.

  • Weak personnel management system. There is little communication between the general personnel management system and ministries, or between the civil service roster and the payroll system. In 1997 the Ministry of the Civil Service (MoCS) conducted a physical census of civil service. The MoCS is still updating its files based on the results from 1997. In 1999 the Ministry of Finance (MoF) decided to conduct yet another civil service census to update their files for the payroll. Absenteeism is rife.

  • Retirement rules. The retirement age is 55, but those who have served for 30 years before reaching age 55 may also retire. In March 2001 about 79 percent of civil servants were at least 40 years old.

  • Mismatch between actual and grade-based salaries. From 1986 to 1992 civil service wages were frozen, but advancements continued within the career structure, creating a gap between position and pay. General salary increases have been granted since 1992, but the gap between actual salary payments and grade-based salaries was never fully closed.

Figure 2A.1
Figure 2A.1

The Main Components of Government Employment in Benin, circa 1998

Sources and dates covered: (i) Updated WB database on PS employment—1996-99; gendarmerie are classified as police, (ii) Benin Ministry of the Civil Service; education figure includes approximately 4,000 contract employees, and the health figure includes approximately 1,000. If no source is shown, then the total is calculated arithmetically *Diplomats are also excluded.

3. Recent and Current Institutional Reforms

Many bilateral and multilateral institutions have supported public administration reform in Benin, contributing an estimated US$50 million over the period 1990-98. There has been little to show for these efforts.

Preparation of a new pay scale (see Table A2.1) and a performance-based compensation mechanism was completed with Bank assistance in early 1998. A law introducing the reform was adopted by the National Assembly in September 1998. It would reform nonwage compensation rules, gradually eliminate the discrepancies between actual salary payments and grade-based salaries over a period of four years, and create a new pay scale with performance-based compensation features. By continuing the policy of hiring two civil servants for every three retirees, it was estimated that the increase in the wage bill would be limited to 5 percent a year. However, implementation of this reform is still waiting for the National Assembly to amend the law on the compensation system, as required by the Constitutional Court.

Table A2.1

Benin Average Wages, 1997

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LCU is local currency unit.

Source: Updated WB database on PS employment: 1996-99.

Enacting civil service reform has proved extremely difficult, due in part to the close interrelation between trade union leaders, public officials (themselves union members), and the parliament, where civil servants represent the majority of deputies. 22 All public employees are unionized, and the unions have demanded pay increases to make up for an earlier wage freeze (see below) as the starting point for any discussion of reform. The current Minister of Civil Service, Employment, and Administrative Reform is himself a former union leader.

4. Key Macrofiscal Concerns

Measures to contain the wage bill in Benin have included (a) a voluntary departure scheme, which led to more than 6,000 departures during 1990-96; (b) a wage freeze from 1986 to 1992; and (c) an attrition policy that allows only two replacements for every three departures. The wage bill fell from 7.2 percent of GDP to 4.6 percent over the same period, and from 107 percent of tax revenue to 34 percent. This reduction in the relative size of the wage bill was produced, in part, by declining real wages following the devaluation of the CFA franc in January 1994 (see Table A2.2).

Table A2.2

Benin: The Main Dimensions of the Public Sector Wage Bill

(all units are local currency, 1999)

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Sources: Statistical Appendix, IMF 2000; and WB World Development Indicators database.

Existing staffing needs, the elimination of discrepancies between actual salary payments and grade-based salaries, and the decentralization process will put pressure on the wage bill and could jeopardize macro-economic stability. Given the unmet personnel requirements in health and education, total employment in the central government is expected to increase. In addition, it is estimated that reestablishing salaries at grade level would increase the wage bill by one-third (about 1.5 percent of GDP). The authorities have agreed to grant a gradual catch-up as a counterpart for moving to the new pay scale and performance-based compensation, and are designing methods to prevent the decentralization process from weakening fiscal policy and expenditure control.

The deficit of the Fonds National de Retraite du Benin (Civil Service Pension Fund, FNRB) is covered by the budget, amounting to 0.5 percent of GDP, and is rising continuously, reflecting the rapidly rising number of civil servants reaching retirement age and the decline in the number of contributing civil servants.

5. Need for Including Civil Service Reforms in PRSC and PRGF Programs?

Improving the efficiency of the civil service and maintaining a stable macroeconomic framework will require including civil service reforms in PRGF-supported programs. The PRGF program should focus primarily on the fiscal implications of the planned reforms, while the Bank and other creditors would focus on the technical work regarding the new pay scale and performance-based promotion mechanism.

6. Benchmarks for the Future. How Will Progress be Monitored?

The implementation of a new pay scale and performance-based compensation mechanism is critical for containing the wage bill (by eliminating automatic step increases and their corresponding pay increases). Benchmarks in this area should consist of specific measures to indicate full implementation, as well as medium-term overall fiscal objectives.

Bolivia

1. Size and Structure of Civilian Central Government

Figure A2.2
Figure A2.2

The Main Components of Government Employment in Bolivia, 1999

Source: Republic of Bolivia, Office of the Vice President, 1999.

2. Key Institutional and Structural Concerns

Public staff recruitment in Bolivia is based on political patronage. Party loyalty is rewarded with public jobs, and it is common for the parties in power to finance themselves by deducting contributions from their public employees’ wages. This mechanism creates incentives for the authorities to raise the wage bill in order to maximize the amount of resources available for political use, and has increased the level of public liabilities substantially, particularly at the municipal level. The government’s hiring procedures also generate high turnover rates, since the mobility of high-level public officials entails the reallocation of loyal employees. The high turnover has prevented the development of a public service ethic, and adversely affects the efficiency and quality of the government’s services.

3. Recent and Current Institutional Reforms

Various reform programs have aimed at restricting the problem by issuing regulations that encourage transparent hiring procedures, based only on the employee’s professional qualifications. There have also been attempts to rationalize the wage bill in the health and education sectors. However, the reforms have been unsuccessful because the concentration of political power, including that of the health and education workers’ unions, remains untouched. Major structural reforms—including an end to political party financing out of civil service wages, judicial modernization, and further decentralization—should be undertaken to help limit the arbitrary use of power, limit the power of unions, and achieve greater transparency and efficiency in hiring procedures and in determining the appropriate size and composition of the civil service.

A comprehensive attempt at civil reform is embodied in Bolivia’s Civil Service Statute of 1999. The Act provided for (a) establishment of an independent civil service superintendent’s office as an overseer of government-wide personnel management; (b) introduction of merit-based recruitment processes; (c) a management-by-results bureaucracy to increase efficiency, transparency, and accountability; and (d) decentralizing government functions.

Table A2.3

Bolivia: Average Wages, 1999

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LCU is local currency unit.

Source: Calculated from data in Figure A2.2 and Table A2.4.

Currently, the Bolivian government is working to reform the structure, organization, and operational processes of targeted public agencies on an agency-by-agency basis. This will imply a separate salary structure for reformed agencies. In each case, the salary structure is defined by balancing fiscal prudence and the need to offer competitive salaries. The process is monitored through quantitative and verifiable targets, including International Standards Organization (ISO) certification.

The reform is facing delays. Some political elites feel threatened by the introduction of merit principles that a successful reform would produce. However, isolated successes—the product of a few tenacious young technocrats—can be observed, such as the institutionalization of the Customs Administration. Since the media and civil society favor the civil service reform, politicians could leverage this support.

4. Key Macrofiscal Concerns

While much of Bolivia’s civil service reform focuses on improving governance, the agency-specific reforms in the National Tax Service and the Customs Administration will have a macroeconomic impact, as well, by enhancing the government’s ability to collect taxes. Both elements are critical for the authorities to raise tax revenues by 4 percentage points of GDP by 2007, as projected in the PRSP. The civil service reform should also help to underpin the medium-term goal of fiscal sustainability (the PRSP framework proposes growth of the wage bill in line with expected inflation—see Table A2.4).

Table A2.4

Bolivia: The Main Dimensions of the Public Sector Wage Bill

(all units are local currency, 1999)

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LCU is local currency unit.

Sources: Statistical Appendix, IMF June 21, 2001; and WB World Development Indicators database.

The Fund has contributed to the reform of the Customs Administration (taking the lead as a coordinator) and of the National Tax Service (by developing a framework for the reform).

5. Need for Including Civil Service Reforms in PRSC and PRGF Programs?

The reforms of the customs and domestic tax administrations are important for the PRGF-supported program and should be monitored. Bank staff will need to weigh the merits of linking the civil service reform to a PRSC rather than an adaptable program loan (APL). The PRSC might be a better instrument if the fiduciary framework (including financial systems and procurement) is deemed sufficiently strong, while the APL permits closer supervision and better technical assistance. The most important advantage of a PRSC is, potentially, greater leverage, with the coordination of donor assistance around a single agreed on program.

6. Benchmarks for the Future. How Will Progress Be Monitored?

Fund and Bank staffs collaborate closely in monitoring progress with the customs and National Tax Service reforms, including joint supervision missions. These reforms are integrated with the overall civil service reform. Structural benchmarks for the reform of these two agencies may continue to be included in PRGF arrangements. Policy conditionality in the Bank’s APL includes five targets related to the overall civil service reform, and the Bank also monitors specific institutional benchmarks for each agency under the reform process.

Cambodia

1. Size and Structure of Civilian Central Government

Cambodia’s public administration has five levels (national, provincial, district, commune, and village). However, administrative management is highly centralized. The Prime Minister appoints provincial governors, who receive almost their entire budgets from the central government and have little authority to raise revenues. To date, no subnational government has been elected. (Commune elections are scheduled for February 2002.)

2. Key Institutional and Structural Concerns

The current civil administration suffers from a number of problems including: (a) prevalence of nepotism and cronyism as a result of the lack of a competitive recruitment system; (b) widespread absenteeism and “brain-drain” due to below-subsistence, noncompetitive remuneration (average pay for civil servants was US$23 per month, far below the minimum wage of US$45 per month in the garment industry—see Table A2.5); and (c) the lack of a clear career path that could motivate staff to carry out assigned tasks.

Table A2.5

Cambodia: Average Wages, 1999

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LCU is local currency unit.

Source: Calculated from data in Figure A2.3 and Table A2.6.

Skilled civil servants at senior management levels (age cohorts of 40s and 50s) are in severe shortage. This reflects a mass destruction of human resources during the Khmer Rouge period (1975-79) and the lack of relevant training opportunities during the 1980s. Teachers’ salary levels need to be increased significantly to attract enough staff to meet the growing need for primary and lower secondary education.

3. Recent and Current Institutional Reforms

The government is currently finalizing the medium-term civil service reform strategy with technical assistance from the Bank, the Fund, the United Nations Development Programme (UNDP), and the Asian Development Bank (AsDB). The current reform scenario for 2002-06 envisages: (a) salary decompression to allow more adequate compensation for higher-level civil servants (and so-called priority mission groups); (b) self-financing of the wage bill; and (c) increasing the number of teachers and decreasing the number of noneducation employees. Reorganization of the ministerial structure is also planned in the second phase.

Figure A2.3
Figure A2.3

The Main Components of Government Employment in Cambodia, circa 1999

Sources and dates covered: (i) Updated WB database on PS employment—1996-99; refers to 1999; (ii) Civil service census, October 2000; (iii) this figure is for 1998, courtesy of Toshi Kato. If no source shown, then the total is calculated arithmetically.

The first commune elections scheduled in February 2002 could potentially bring a fundamental change in the way public services are delivered for local people. The ongoing civil service reform initiative launched in 1999 is being carried out in a much less fragile political environment than during earlier efforts in 1993-97. The completion of a comprehensive civil service census—including fingerprinting and identity cards—will provide a better foundation than has existed in the past for monitoring the implementation of reforms.

The AsDB assisted in the design of Priority Mission Groups (PMGs). Bank and Fund staffs expressed reservations about the long-term impact of PMGs. The PMGs will operate outside the normal civil service pay and employment structure. Thousands of non-PMG officials would receive lower salaries than their counterparts in PMG posts. This will likely be a source of friction. Moreover, introducing PMGs might postpone reform of the core civil service structure. A medium-term integration strategy is needed to avoid the possibility of permanent, parallel civil service structures, with PMGs leaving the civil service upon completion of their appointments.

4. Key Macrofiscal Concerns

The size of Cambodia’s wage bill, as a percent of GDP or total current expenditure, is not excessive in comparison to similar low-income countries. This situation, however, largely reflects unsustainably low salary levels (see above). Civil service employment in relation to total labor force or total population has been kept broadly constant, and this is projected to continue in the medium term, with a marked increase in the education sector (16 percent) partly offset by a decline (-18 percent) in other sectors. Increases in government wages over the medium term will remain directly tied to meeting revenue targets and timely implementation of military demobilization. The Bank, as well as bilateral donors, is committed to support demobilization, which should generate payroll savings. As a result, the civilian wage bill should remain below 40 percent of current expenditures (see Table A2.6).

Table A2.6

Cambodia: The Main Dimensions of the Public Sector Wage Bill

(all units are local currency, 1999)

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LCU is local currency unit.

Sources: IMF RED tables; and WB World Development Indicators database for population.

A broad spectrum of international financial institution (IFI) assistance to macrofiscal reform is covered by the Fund under a three-year Technical Cooperation Action Plan (TCAP) initiated in early 2001 and by the Bank through an Economic Capacity Building project and grant assistance.

5. Need for Including Civil Service Reforms in PRSC and PRGF Programs?

A PRSC is currently envisaged for fiscal 2003, and it should include civil service reform. Both the government and the donor community agree that public sector reform is central to lay the foundations for poverty reduction and sustainable development. In particular, improving the performance of service delivery in the key sectors (health, education, agriculture, and rural development) will have a direct impact on poverty reduction in rural areas, where a majority of Cambodia’s poor live.

Civil service reform has been a key component of the reform agenda since the inception of the current PRGF-supported program in October 1999. The authorities and Fund staff considered that civil service reform, in tandem with military demobilization, was central for ensuring the medium-term viability of the fiscal program and improving the delivery of public services. A division of labor between the Bank and the Fund was agreed on, whereby the Fund would monitor the overall wage bill in the context of the fiscal constraints, and the Bank would take the lead role in the design of the reform strategy.

6. Benchmarks for the Future. How Will Progress Be Monitored?

Under the PRGF-supported program the overall wage bill is set annually in consultation with Fund staff. The overall civilian wage bill will be kept below a maximum of 40 percent of current expenditure. Annual employment levels will be contained within the parameters set under the government’s medium-term strategy for civil service reform, to be implemented starting in 2002.

Cambodia recently developed a Governance Action Plan (GAP), a compendium of priority reform actions in key reform areas—the legal and judicial sector, civil administration, decentralization and local governance, public finance, anticorruption, gender equity, military reform and demobilization, and natural resources management. The government is in the process of developing benchmarks and progress indicators in collaboration with donors and civil society organizations.

Former Yugoslav Republic of Macedonia

1. Size and Structure of Civilian Central Government

The FYR of Macedonia’s civilian central government stood at 4.5 percent of the population in 1998 (see Figure A2.4). This places the country in the bottom third of a set of Central and Eastern European comparator countries (Albania, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic, and Turkey). However, FYR Macedonia outstrips other Central and Eastern European countries in terms of general government wage expenditures relative to both total expenditures and GDP. The General Government Wage Bill is significantly underestimated because many of the line ministries supplement wage payments from their special revenue funds, which are not recorded in either the central or general government accounts. For example, the accounting of the health fund (the largest off-budget agency) does not identify the wage bill for health staff. Off-budget entities are not generally included in these totals, but FYR Macedonia is unusual in that a large number of public sector staff are employed through such bodies.

Figure A2.4
Figure A2.4

The Main Components of Government Employment in FYR Macedonia, 1999

Source: World Bank staff files.

2. Key Institutional and Structural Concerns

The salary structure does not motivate. Pay levels in the administration are severely compressed. Professional staff face weak financial incentives to take on senior positions that carry greater responsibilities and require more advanced skills. Estimates from individual ministries indicate that an undersecretary (one of the most senior posts) might earn roughly 2 to 3 times more (net, including allowances) than the lowest-paid employee such as a cleaner. This compression ratio is more extreme than those found in some other post-communist countries. Compression ratios in this range do not promise much in the way of financial benefits from an extended career in FYR Macedonia’s public administration. However, decompressing the salary structure without rationalizing the size of the civil service could pose difficulties in fiscal sustainability given the size of the wage bill relative to GDP and to total spending.

Interpreting the adequacy of total compensation is difficult. Determination of actual wage levels is complicated by general problems in data availability and the decentralized wage-setting approach. Due to weaknesses at the center of government (and particularly in the MoF), wage increases have been granted in selected ministries. For example, the Ministry of Interior received an across-the-board increase of 20 percent during the spring 1999 crisis in neighboring Kosovo. Ministry of Defense staff members are reported to have received special payments, with some enhancement from revenues received from donor organizations. Further flexibility is provided, because some positions are classified as “specific posts,” allowing wages to be set at a higher rate (for example, administrative inspectors at the Ministry of Justice, labor inspectors, and some police).

It is probable that pay at lower levels is comparable to that in the private sector, particularly after the relative job security afforded by public administration is taken into account, while pay at senior levels is less competitive. Ironically, a weak private sector labor market has, for the time being, eased the difficulty of attracting and retaining qualified people in the public sector. According to the data in Figure A2.4 and Table A2.7, average central government wages relative to GDP per capita were relatively high at approximately 1.8 times GDP per capita in 1999.

Table A2.7

FYR Macedonia: The Main Dimensions of the Public Sector Wage Bill

(all units are local currency, 1999)

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LCU is local currency unit.

Source: IMF Staff Report, April 2000; and WB World Development Indicators database.

Personnel management is weak. In addition to the structural pay problems, attracting, retaining, and motivating qualified staff is difficult because of limited career growth prospects. There are very few promotions, and limited resources and attention devoted to systematically upgrading the skills of staff through either formal or informal (such as on-the-job) training. Most staff are hired to position rather than being promoted. While there are important advantages in permitting and encouraging competition for open positions, the effective absence of reasonable prospects for career advancement reflecting higher salaries undermines the public sector’s capacity to attract and retain qualified and highly motivated staff. It does not appear that central authorities exercise much oversight of the personnel management authority exercised by line ministries, nor do there appear to be particularly effective mechanisms for staff to challenge personnel management actions.

There are severe political difficulties in reform. The government has neither the data nor the political will to manage any political backlash that would result from making reductions in force aimed at reducing the wage bill. Under these circumstances, it is not surprising to see the government responding to external pressures for it to reduce the wage bill by seriously considering, and sometimes adopting, untargeted or poorly targeted measures for achieving reductions in force.

There is evidence of sector-specific overstaffing in health and education. Together these sectors account for about 58 percent of government employment. In health, employment of both medical personnel and support staff is excessive relative to demand for services. In education, numbers of nonteaching staff in elementary and secondary schools are higher than levels commonly found in Organisation for Economic Co-operation and Development (OECD) countries, and there are indications that teaching staff is underutilized.

3. Recent and Current Institutional Reforms

Both the Bank and the Fund have been working with the Government of the FYR of Macedonia for several years on institutional and structural reforms. The Fund has focused on keeping the wage bill under control in order to ensure macroeconomic stability, with corresponding implications for downsizing. In particular, under the enhanced structural adjustment facility (ESAF), and later under the PRGF-EFF arrangements, the Fund specified wage ceilings and actively sought the divestment of non-core activities under the PRGF-EFF-supported program.

The Bank has focused on longer-term budget management reforms by working to develop both policy and budget-formulation institutional practices and capacities. This involves bringing various off-budget financing within the budget, creating contestability in the budget preparation and policy formulation process, and strengthening basic accounting and auditing rules, procedures, and capacities. Civil service reforms will continue to focus on creating a depoliticized, merit-based civil service, and making the salary structure within the civil service more competitive and more motivating. The future direction of civil service reform is uncertain following the recent Peace Framework Agreement between ethnic Albanians and Macedonians, which calls for increased participation of ethnic Albanians in the civil service.

4. Key Macrofiscal Concerns

The government has been pursuing wage bill reductions under its agreements with the Fund (see Table A2.7). The Bank has offered considerable advice to the government on how to target the employment reductions required to achieve those targets. The government has made commitments to the Fund to meet reduction targets in the wage bill within tight time frames but has then tended to postpone employment reduction decisions. Last-minute efforts to meet targets in the wage bill have sometimes relied on ad hoc decision rules. In the eyes of the Macedonian public and public employees, such ad hoc measures have tended to equate institutional and governance reforms with reductions in public employment.

5. Need for Including Civil Service Reforms in PRSC and PRGF Programs?

Civil service reform is an essential element to the Public Sector Management Adjustment Credit/Loan [for FYR Macedonia] (PSMAC)-supported reforms. The PSMAC is similar to a PRSC. Key objectives of the reform effort are to (a) make the civil service more meritocratic and less politicized, and (b) make it a more attractive career option, while (c) ensuring a fiscally sustainable public sector.

6. Benchmarks for the Future. How Will Progress Be Monitored?

The government will provide baseline measurements on six monitoring indicators as part of satisfying the monitoring indicators condition for presentation of the Public Sector Management Adjustment Credit (PSMAC 1) to the Board of Directors of the International Development Association (IDA). These indicators include employment and wage bill totals, policy management arrangements, realism of budget requests, treasury system, health service delivery, and civil service management.

Mali

1. Size and Structure of Civilian Central Government

Figure A2.5
Figure A2.5

The Main Components of Government Employment in Mali, 1999

… = not available.Sources: (i) IMF RED tables (estimate) in 2000 Staff Report; (ii) Updated WB database on PS employment—1996-99. If no source is shown, then the total is calculated arithmetically.

2. Key Institutional and Structural Concerns

Two major structural problems characterize Malian civil service today: (a) aging of the work force, and (b) poor working conditions, mainly due to budgetary constraints. The combined effects of these problems are low morale and motivation, resulting in poor performance, lack of accountability, and poor public service delivery.

New hiring has been highly restricted in Mali since 1982, with the exception of the health and education sectors. During the last three years, recruitments have been limited to 250 civil servants a year. This policy, while helping to control the wage bill, is producing a dramatic aging of the civil service. The average staff age is 48 years and the mandatory retirement age is 55 years. If maintained, this policy will result in 70 percent of current civil servants being forced to retire within 10 years.

3. Recent and Current Institutional Reforms

The retirement fund (CRM) is facing liquidity problems and was dependent on government transfers of some CFA franc 8 billion in 2000. A CRM reform plan was prepared on the basis of the recommendations of an audit completed in 2000, with technical assistance from the Bank. This plan, which is currently being implemented, will lead to improved transparency in the fund’s operations and will facilitate completion of the actuarial study.

Three key public sector reforms—financial sector, privatization, and decentralization—have been initiated in recent years, but with very limited impact so far. Discussion of decentralization has also underscored the trade-offs between “frontal” civil service reform—with all the political risks it entails—and the potential gains from a more pragmatic, incremental approach to reform—working at the heart of intergovernmental relations (administrative, financial, and fiscal relations). Policymakers are well aware of the hard decisions to be made regarding the need to confront an entrenched central bureaucracy unwilling to give up its control over both internal (national budget) and external resources (externally funded investment programs). Another difficulty comes from the need to ensure that a sustainable local government system is put in place, because so far the transfer of mandates and authority to local governments has not been matched with financial resources and fiscal authority.

4. Key Macrofiscal Concerns

The wage bill is not expected to be a source of imbalances in Mali, in light of the need to observe the convergence criterion set out by the West African Economic and Monetary Union (WAEMU)—see Table A2.9. In addition, the ongoing reform of the CRM is expected to address its liquidity problems, and thus eliminate (or limit) the need for government transfers beyond 2002. Yet it is unclear, at this stage, how government transfers to the CRM, if they continue, will tilt the composition of expenditure in the future.

Table A2.8

Mali: Average Wages, 1998

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LCU is local currency unit.

Source: Updated WB database on PS employment—1996-99.
Table A2.9

Mali: The Main Dimensions of the Public Sector Wage Bill

(all units are local currency, 1999)

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Sources: IMF RED tables; and WB World Development Indicators database for population.

While the restricted hiring of civil servants in recent years, combined with the government’s conservative wage policy, improved public finances and resulted in some savings, it only led to a modest shift in public spending toward key social sectors.

5. Need for Including Civil Service Reform in PRSC and PRGF Programs?

The second annual program under the PRGF includes a civil service reform component aimed at modernizing the service and harmonizing the various salary structures. However, this reform does not currently benefit from expertise from either the Bank or any other donor. The reform should be an integral part of adjustment lending operations but should be accompanied by other administrative reforms and improvements in transparency and accountability. The main motivation for the reform stems from:

  • Poor public service delivery and deficient resource allocation. Despite substantial increases in resources allocated to education (2.75 percent of GDP) and to health care (2 percent of GDP) during 1995-98, only modest improvements in services have been achieved: resources are still disproportionately spent in urban areas, while most of the poor live in rural areas. Legislation is passed but is not implemented adequately.

  • Endemic corruption. A recent study of corruption in the public service in Mali identified three key contributing factors to corruption among civil servants: (a) excessive discretionary power in the hands of civil servants; (b) mild sanctions and lack of safeguards; and (c) lack of transparency of government affairs. Mali lacks a “rule of law” culture (aggravated by a weak judiciary with inadequate human and financial resources to function properly—less than 1 percent of the national budget is allocated to the judiciary). This, and a lack of proper controls on the executive, lead to abuses of power, lack of transparency, and unlimited opportunities for corruption.

6. Benchmarks for the Future. How Will Progress Be Monitored?

Although relevant, reductions in the size of the civil service and compression of the government wage bill are not useful benchmarks to assess progress in institutional reforms. Rather, the focus should be on improvements in service delivery measures, including quantitative targets for the quality and coverage of publicly provided goods and services.

Mongolia

1. Size and Structure of Civilian Central Government

Figure A2.6
Figure A2.6

The Main Components of Government Employment in Mongolia, 2000

Sources: (i) World Bank and Mongolia MOF data, courtesy of Vera Songwe. If no source is shown, then the total is calculated arithmetically, (ii) Note that employment in health and education is mostly administered by local governments.

Detailed payroll data on the age composition of the civil service, the grade levels, and number of civil servants in each grade are not readily available. Mongolia has 21 local governments, which administer approximately 60 percent of the wage bill. Although this money is allocated by the central government, local governments have autonomy over their budgets and frequently depart from policies designed by the central government. Budget norms are only indicative and do not restrict local governments in their decisions to hire new staff. Wage policy is determined by the central government, but there is very little control over wage levels in local governments. Indeed, the lack of accountability of local governments over their employment policies is a major factor hampering fiscal consolidation in Mongolia. In education, for example, local governments have the ability to hire staff, with the constraint that budget allocations are made on the basis of agreed on norms determining the student-teacher ratio for each class size and grade, and type of education.

The average monthly salary in the civil service is about US$47 (see Table A2.10). Civil service salaries are on average about 40-50 percent lower than in the private sector.

Table A2.10

Mongolia: Average Wages, 2000

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LCU is local currency unit.

Sources: WB; and Mongolia MoF data.

2. Key Institutional and Structural Concerns

Wage increases have been carried out independently of the overall fiscal aggregates, which have sharply, but disproportionately, raised the costs of public employment. Current institutional arrangements are deficient because they do not institute strict rules for hiring and dismissing civil servants. Over 30 percent of civilian central government is replaced following elections, leading to increased rent seeking. Recruitment into the civil service is no longer based on an entrance examination; thus the overall quality of the staff has declined, particularly in education and in rural areas.

Low requirements for reporting on public employment and wages have de facto limited the monitoring of the civil service.

3. Recent and Current Institutional Reforms

The Public Sector Reform Agenda of the government, under discussion with the IFIs, includes a move toward output-oriented budget management and a change in civil service arrangements toward more merit-based recruitment and promotion.

A newly proposed Privatization Program, vaguely consistent with the public reform agenda, may privatize large segments of the health and education sectors. As an expenditure-saving measure in 2001, the government began the privatization of over 18 institutes of higher learning, and some health-care facilities in the urban areas. This is expected to reduce the overall civil service wage bill. However, the effects of these policies on service delivery need to be examined more closely.

4. Key Macrofiscal Concerns

Current expenditures rose sharply from 18.5 percent of GDP in 1995 to 30 percent of GDP in 2000. The wage bill has also drifted upward, rising to 8.2 percent of GDP in 2000, up from 5 percent in 1995. This is partly due to: (a) successive across-the-board wage increases, which were granted to all civil servants irrespective of productivity; and (b) new hiring of teachers, as required by increasing school enrollment rates, with no compensating retrenchments in lower-priority sectors.

The total wage bill appears excessive in GDP terms and impedes the government from adopting an appropriately differentiated wage structure (see Table A2.11). The relatively low salaries of skilled employees are leading to an overall drop in the quality of the civil service as better-qualified employees move to the private sector. The government has been struggling to retain competent staff by increasing allowances to higher-level staff and allocating training and travel grants.

Table A2.11

Mongolia: The Main Dimensions of the Public Sector Wage Bill

(all units are local currency, 2000)

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LCU is local currency unit.

Sources: IMF staff; and WB World Development Indicators database for population.

5. Need for Including Civil Service Reforms in PRSC and PRGF Programs?

The programmatic nature of the PRSC provides an appropriate vehicle for discussing issues of civil service reform. It provides a direct link between the functional analysis of the budget expected of the PRSP and the overall objective of fiscal sustainability. Initial work has been undertaken in the ongoing Public Expenditure Review (PER).

Civil service reforms will be key to the effective implementation of the PRGF program, and an essential part of engineering significant expenditure savings over the medium term, improving fiscal transparency and the effectiveness of public spending. Recent program negotiations include (a) stricter standards for fiscal data reporting, (b) policies to restrain wage increases in 2001 and contain the wage bill over 2002-04, and (c) support for development of a long-term strategy with Bank collaboration.

6. Benchmarks for the Future. How Will Progress Be Monitored?

Benchmarks for the future include (a) revising the civil service code and developing policies for creating a professional civil service with transparent rules for hiring and firing; (b) developing a fully functioning payroll system; (c) ensuring that the forthcoming reforms to the budget process facilitate the coordination of civil service reforms among government agencies; and (d) rationalizing the level of the civil service, with a view to decreasing the overall size the wage bill, while increasing the quality of services delivered.

Pakistan

1. Size and Structure of Civilian Central Government

Civil service employees of civilian central government (see Figure A2.7) receive a basic monthly salary, a variety of allowances (equal to 25-40 percent of base pay), and—for some—benefits in-kind, such as housing and transport. These civil servants also enjoy a pension, which is not common in the private sector.

Figure A2.7
Figure A2.7

The Main Components of Government Employment in Pakistan, 2000

Sources and dates covered: (i) Government of Pakistan, Establishment Division. This may be a slight understatement as it excludes civilian staffs in the Ministry of Defence, the Ministry of Foreign Affairs, and certain Public Sector Organizations/Corporations; (ii) Government of Pakistan, Planning Commission report, April 2000; (iii) Updated WB database on PS employment—1996-99; data are for 1997, assumed relatively unchanged for 2000. If no source is shown, then the total is calculated arithmetically. *Provincial employment figures are based on numbers of sanctioned posts rather than actual employment.

Once admitted to a particular civil service cadre, staff (district management, secretariat, taxation, customs, technical cadres, and so on) progress on the basis of seniority. Lateral entry is uncommon. An elite core of generalists (district management and secretariat groups) is managed separately.

2. Key Institutional and Structural Concerns

Base pay for the vast majority of government employees is according to a single pay scale. However, there are numerous cash allowances (and in-kind benefits for high-level civil servants). These allowances and benefits can total as much as 400 percent or more of basic salary (see Table A2.12).

Table A2.12

Pakistan: Average Wages,1998

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This average is derived from federal provincial personnel expenditures.

LCU is local currency unit.

Note: Pakistan’s public administration has a highly centralized organizational structure, management, and rules. Patronage undermines the Weberian rules that formally underlie Pakistan’s civil service. Performance evaluations are not meaningful for promotions and rewards. Staff automatically “move over” to the next higher grade within two years after they have reached the maximum of the pay scale for their existing grade. In general, relatively low pay appears to be no barrier to recruiting well-qualified people at entry level.Source: “A Framework for Civil Service Reform in Pakistan.” World Bank Report No. 18386-PAK, December 15, 1998.

In 1998, fewer than 10 percent of federal government employees were paid by means of a computerized payroll. There were at least 48 allowances in existence, greatly complicating the manual payroll system. Incorporating these allowances into base pay would both simplify the payroll system and make it far more transparent.

3. Recent and Current Institutional Reforms

The Government of Pakistan (GoP) believes that substantial devolution of government functions to the local governments (LGOs) is essential for improving accountability and service delivery in the country. The government has proposed a new system with three layers of local bodies at the district, tehsil, and union levels. These plans for devolution were scheduled to become effective on August 14, 2001. Devolution is to be implemented in phases over the next three years. There are important signs of commitment of the president to combat the patronage and pervasive political interference in appointments and transfers, as well as the opaque, overly generous pension system.

The low quality of public services in Pakistan reflects, in the authorities’ view, the low capacity of the civil service, because of skills shortage lack of incentive structure for better performance, quota-based employment, politicization, and vested interests. To address these problems, the government has launched a civil service reform that relies on educational programs; the review of salary structure; the introduction of a promotion system that is based on merit; and across-the-board downsizing through early retirement measures.

4. Key Macrofiscal Concerns

The size of the wage bill, while not figuring prominently in the macro-economic dialogue, has been a major source of concern in the policy dialogue on provincial economic reforms (see Table A2.13). Wage bills and pensions can account for more than 40 percent of provincial government expenditures. However, in the context of the ongoing federal pay and pension reform, more attention must be given to the wage bill dynamics, given that a very important pay increase is involved (first estimate of the cost for the full-year impact of the reform is about 1 percent of GDP). This goes together with a pension reform and a downsizing of the civil service for which the costs and the advantages have not yet been clearly estimated.

Table A2.13

Pakistan: The Main Dimensions of the Public Sector Wage Bill

(all units are local currency, 1999)

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LCU is local currency unit.

IMF staff;

IMF Staff Report, March 2001, EBS/01/39;

WB World Development Indicators database

The composition of spending is mainly affected by interest payments on debt (about 50 percent of federal current expenditure, and 7 percent in GDP terms) and defense spending (close to 33 percent of federal current expenditure, and 4.5 in GDP terms). Development spending at both federal and provincial levels has been constrained to below 3 percent of GDP. The bulk of government employment is concentrated at the provincial level.

At both the fiscal and the balance of payments (BOP) levels, most of the imbalances are linked to the difficult debt situation faced by Pakistan. During the last year, in the context of the SBA, the country has benefited from debt rescheduling and has undertaken some fiscal consolidation, though unfavorable weather conditions will limit the amount of fiscal adjustment affordable by the country in fiscal 2001-02.

5. Need for Including Civil Service Reforms in the PRSC and PRGF Programs?

The PRSP process is scheduled to begin this year in Pakistan. Civil service reforms at the federal and provincial government levels will likely appear prominently in this process, because both are central to the government’s devolution initiative, intended to enhance efficiency, accountability, and the quality of service delivery to local communities. Civil service reform issues will be a core part of the provincial reform programs in provinces such as Sindh and North Western Frontier Province (NWFP) that are likely to be supported by adjustment lending.

A mission was in Pakistan in the second half of August 2001 to conclude the third (and last) review of the SBA and start negotiation for a medium-term program that could be supported by the PRGF. Civil service reform will be included in the PRGF-supported program, but will not be part of its conditionality, given that the Bank will take the lead on advising the government and monitoring the structural aspect of the reform. The Fund will limit its role to monitoring the fiscal implications of the reform. One issue that will need particular attention is the possibility of higher-than-estimated fiscal costs over the medium term of the devolution program.

6. Benchmarks for the Future. How Will Progress Be Monitored?

To address risks in devolving authority for delivery of resources and financial management from the provincial to local governments, expenditure will be tracked under the proposed Structural Adjustment Credit for Pakistan (WB Report No. P7443-PAK). Financial transfers will be based on: (a) need (based on population); (b) “backwardness” (based on housing units and statistics); and (c) performance (fiscal and service delivery—such as girls’ primary school enrollment).

The Russian Federation

1. Size and Structure of Civilian Central Government

The nearest approximation to civil servant status in Russia is afforded to the “state service” positions in the federal executive branch, covered under federal law no. 119-FZ of July 31, 1995. At a total of some 519,000, the state service is a relatively modest proportion of total public employment in Russia. Excluding employment in state-owned enterprises, for which there are no current data, total public employment in Russia is approximately 6.4 million (see Figure A2.8).

Figure A2.8
Figure A2.8

The Main Components of Government Employment in Russia, 1998

Sources: (i) Updated WB database on PS employment—dates between 1996-99; (ii) Goskomstat (1998). *Estimated figure. If no source shown, then the total is calculated arithmetically.

A small number of state service officials are located in Moscow-based ministries and other federal executive bodies. The remainder, although employed by the federal government, are located in “subjects of the Russian Federation,” rayons, and municipalities. Excluding the assumed 150,000 employees of the Ministries of Defense and Interior, the state service officials in Moscow represent only some 7 percent of the total civilian central government.

2. Key Institutional and Structural Concerns

Rewards structure does not motivate. Total rewards for officials in the state service include monetary payments and in-kind benefits, although these are increasingly restricted to a very small number of senior officials. Salaries and allowances are governed by two scales for headquarters offices (for ministries and for other executive bodies) and four scales for local office staff, classified according to the size of the Federation subject, rayon, or municipality in which they are located. The resulting pattern of rewards is highly complex and unlikely to motivate.

Total compensation is inadequate. There are few sound comparators for senior state servant salaries, but it seems probable that official monetary rewards are significantly below those that might be obtained in the private sector. Russian experts estimate that at the level of deputy ministers, official monetary rewards are between 10 to 15 times below those in the private sector in Moscow. In 1998, average wages in the central government were rubles (Rub) 47,583, about 2.54 times the per capita GDP. There are few data available on rewards for public officials outside of the state service.

Merit is not rewarded. The state service will perhaps form the foundation of a formal merit-based civil service, but currently this group includes the judiciary, excludes administrators in the Ministries of Defense and Interior, and has no merit-protection body to ensure competence and political neutrality.

3. Recent and Current Institutional Reforms

Civil service reform to date has focused on the judiciary and the military. Current wage bills for these groups are estimated at Rub 5.5 billion (0.2 percent of GDP) and Rub 9.3 billion (0.4 percent of GDP), respectively. An estimated 400,000 reduction in military personnel is programmed for 2002. Some reform measures were implemented in 1998 with some reductions in 1999. In 1998 cuts of 275,000 personnel were made across the public sector, of which 155,000 were cut from the military. There was no direct involvement of the IFIs in preparing the reforms.

A concept for modernization of the Federal Civil Service is likely to be approved soon and could lead to a detailed action plan. President Putin has recently signed an executive order creating a commission to reform the State Service, headed by the prime minister. He has also created an interministerial working group to prepare drafts of the program for civil service reform, for adjusting federal laws, as well as other normative acts related to civil service. The working group will be headed by the first deputy head of the president’s administration. Much of the current discussion focuses on possible efficiency improvements in pay and employment reforms in the state service. On savings, it is clear that there are relatively few opportunities for efficiency improvements in the Moscow offices of the federal ministries and other executive bodies. A reduction in the numbers of state servants seems unwise and somewhat unproductive, given their relatively small number.

Pay increases for the state service would have a relatively modest impact on the Federal Government wage bill. However, it is not clear what the impact of such increases would be on other groups of staff and any race toward maintaining parity could prove fiscally unsustainable. In particular, the proposed unified tariff schedule (UTS) wage system aims to unify base pay and additional payment benefits, by awarding pay increases and eliminating allowances. This proposed pay increase poses no immediate or medium-term problems to the federal government budget, but it does pose a problem at the subnational level, where savings from subnational reforms will take longer to materialize. As a result, the overall picture suggests that public sector wages may grow too rapidly following the planned wage increase.

The government is considering functional reviews as one avenue for pursuing this further. The institutional reform agenda is likely to include the establishment of a formal, merit-based civil service, and, as noted, this would include a tighter legal definition of the civil service, and the establishment of a merit-protection body to ensure competence and political neutrality.

4. Key Macrofiscal Concerns

In 1998, the authorities adopted a program for controlling government spending in the face of external and domestic imbalances, including a large budget deficit (6 percent of GDP). They followed prudent policies in 1999-2001 with a surplus of 2.5 percent of GDP projected for 2001. The draft 2002 budget envisages a surplus of 1.5 percent of GDP. However, revenues have been supported by high global energy prices, and the staff is concerned about the medium-term outlook owing to the cost of reforms (tax policy, pensions, judiciary, wage, education, health, and social benefits).

The wage bill appears sustainable at the federal level but may be more problematic at the subnational level (see Table A2.14). In 1997 and 1998 the federal wage bill was equivalent to 3.2 percent of GDP. Following cuts in real wages in response to the crisis as well as cuts in employment in 1998 and 1999, the federal government wage bill was reduced to Rub 118 billion in 1999, about 2.6 percent of GDP and about 14.5 percent of federal government expenditure. In 2002 large wage increases related to pay reform and reform of the military and judiciary will increase the wage bill to 2.9 percent of GDP. The pay increase is linked to a shift in spending toward the social sectors from 2.2 percent to 2.5 percent of GDP and from 18 percent to 21 percent of noninterest expenditure.

Table A2.14

Russia: The Main Dimensions of the Public Sector Wage Bill

(all units are local currency, 1999)

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LCU is local currency unit.

Sources: Government Financial Statistics (GFS) 1999; IMF RED tables; and WB World Development Indicators database for population.

5. Need for Including Civil Service Reforms in PRSC and PRGF Programs?

Russia is not a PRGF country and no other program is currently in place. As a middle-income country, Russia is not required to prepare a PRSP. However, the authorities are continuing with civil service reform, and are extremely keen to receive technical support and policy advice on this from the IFIs.

6. Benchmarks for the Future. How Will Progress Be Monitored?

The Bank does not anticipate any major lending operation to the Russian Federation concerning civil service reform although there is a possibility of a lending operation to support subnational public administration reform in fiscal 2003 or fiscal 2004. Monitoring will be undertaken within the intensive technical assistance that the Bank is providing. Progress will be monitored by the Fund in the context of regular surveillance, including currently under post program monitoring.

Tanzania

1. Size and Structure of Civilian Central Government

Total public employment in 1999 was approximately 450,000 (see Figure A2.9). Recent decentralization has resulted in the devolution of centrally managed education and health personnel, but has not removed them from the central government wage bill. Some ministry staffs, for example, agriculture, have been fully decentralized and are now funded from local government budgets.

Figure A2.9
Figure A2.9

The Main Components of Government Employment in Tanzania, 1999

Sources: (i) Updated WB database on PS employment—1996–99; *1996 data adjusted to 1999 on the basis of WB file data; (ii) 1999 Government of Tanzania Economic Survey. If no source is shown, then the total is calculated arithmetically.

2. Key Institutional and Structural Concerns

Capacity and performance have been undermined by low pay and associated informality, with a weak work ethos. Although civil service employment almost tripled between 1971-72 and 1993-94, the wage bill was kept under control by sharp erosion in real wages. The effect of this decline on the quality of public services was further aggravated by a deliberate compression of the wage scale, with even sharper reductions in real wages for technical and professional staff. The wage bill remains a significant fiscal burden and the take-home pay has not sufficiently improved for technical and professional staff. The salaries of top-level civil servants are generally supplemented by donors, but the remuneration of technical and professional staff remains a factor of 10 below wages in nonbudgetary government institutions, such as the Central Bank. As a result, the government has great difficulties in attracting and retaining qualified professional staff, and the effectiveness of much technical assistance in the macrofiscal area is impaired because of the lack of qualified national counterparts. The average government wage across central government is Tanzanian shillings (T Sh) 861.5 thousand; this is 4.3 times larger than per capita GDP.

In the education and health sectors, a reallocation of current staff could achieve better distribution in rural areas. Still, absolute numbers are insufficient in relation to service delivery targets.

3. Recent and Current Institutional Reforms

The strength of the main political party, the Chama Cha Mapinduzi (Revolutionary Party) of Tanzania (CCM), with a long history of open debate and discussion, provides considerable discipline in a demanding reform process. The multi-party framework creates a competitive environment, forcing politicians to be serious about the reforms.

The recent track record on civil service reforms has been encouraging. The total number of employees in civilian central government fell from 355,000 to around 260,000 over the last eight years. The pay structure has been rationalized and some decompression achieved, although recent evidence points to the damaging combination of the tax system and the monetization of benefits, which has resulted in a real decrease in wages for many staff. Rationalization of staff through reviews has been extended to local government. Noncore services have been contracted out.

There are two innovative features of the current institutional reforms: (a) agency level restructuring and performance focus, and (b) a pragmatic approach to salary enhancement. Both are showing some promise. Using the incentives provided by a Performance Improvement Fund, eight ministries, departments, and agencies (MDAs) have strategic plans and are working on annual operational plans. The cornerstone of the pay strategy is selected accelerated salary enhancement (SASE). The SASE responds to the challenge of achieving a higher level of reward for public sector employees under severe budgetary constraints, when there is little scope for across-the-board salary enhancement, and when it is clear that employment reduction will not be enough to finance pay strategy targets. This is consistent with the medium-term pay strategy and provides significant pay enhancement for technical or professional staff and for those in critical positions. SASE should facilitate to phase out project implementation units (PIUs) by bringing donor top-ups and project staff salaries in line with medium-term pay reform targets and eventually eliminating them. Thus far, however, SASE is being applied on a pilot basis in only two ministries.

4. Key Macrofiscal Concerns

Tanzania has made excellent progress in stabilizing its economy since 1995. Large fiscal imbalances in 1993-95 were caused by rapid increases in expenditures and stagnating revenues (reflecting increasing exemptions). However, fiscal consolidation under a strict cash-rationing system, supported by tight monetary policies, resulted in a reduction in inflation from almost 30 percent in 1993 to about 5 percent at present, and gross official reserves increased from equivalent to 1.5 months of imports of goods and nonfactor services in 1995 to more than 5 months. Real GDP growth also increased during this period, from 3.6 percent in 1995 to more than 5 percent in 2000. Presently, the key macrofiscal concerns in Tanzania are the continuing low revenue-to-GDP ratio (see Table A2.15), weak expenditure management at the central as well as the local governments levels, and low capacity in macrofiscal analysis and policy formulation.

Table A2.15

Tanzania: The Main Dimensions of the Public Sector Wage Bill

(all units are local currency, 1998–99)

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LCU is local currency unit.

Sources: GFS 1999; IMF RED tables; and WB World Development Indicators database for population.

Tanzania has received assistance in macrofiscal reforms from both the Bank and the Fund. The Bank has played an important role in civil service reform and restructuring and privatizing the parastatal enterprises. In addition, it has been a driving force behind annual PERs and the formulation, with broad participation of donors and civil society, of medium-term expenditure frameworks. The Fund has assisted the authorities in formulating the broad outlines of the annual budgets consistent with the macroeconomic objectives, and in macrofiscal analysis. In addition, FAD has provided extensive technical assistance with regard to public expenditure management. With regard to the latter, FAD is the executing agency for a project financed by Switzerland to strengthen the Policy Analysis Department in the MoF.

5. Need for Including Civil Service Reforms in PRSC and PRGF Programs?

The reform process in Tanzania started before the PRSP exercise, but the I-PRSP reflects the dual concerns for improving wages and strengthening performance management at agency level.

The PRGF in Tanzania has been formulated with a view to allowing sufficient room for wage increases in the context of the medium-term pay reform policy. With increased emphasis on poverty reduction and on transparency and corruption issues, the quality of public services is becoming increasingly important under PRGF-supported programs. Many of these issues are in the domain of the Bank and should be addressed under Bank-supported operations. However, where this is not the case, appropriate conditionality should be included under Fund-supported programs.

6. Benchmarks for the Future. How Will Progress Be Monitored?

Key Bank indicators include further downsizing of the public sector, and evidence of service delivery improvement as measured by public surveys. More specific indicators include the numbers of performance benchmarks established for MDAs and the number of executive agencies established.

Employment is no longer a major concern for the Fund in Tanzania; indicators and benchmarks are discussed with the authorities during program and surveillance missions. Developments in the wage bill are monitored by Fund staff on a monthly basis in the context of monitoring overall fiscal developments.

The Republic of Yemen

1. Size and Structure of Civilian Central Government

The unification of the Arab Republic of Yemen and the People’s Democratic Republic of Yemen in 1990 required the merger of two very different systems, and created a much larger civil service that at times duplicated functions (see Figure A2.10). In addition, the return of around 800,000 Yemenis from the Gulf, following the Gulf War, required the government to absorb a large number into the civil service for social reasons, further exacerbating the problem of overstaffing.

Figure A2.10
Figure A2.10

The Main Components of Government Employment in the Republic of Yemen, 1999

Sources and dates covered: (i) MOCSAR and World Bank calculations. Includes civil administration and contract workers. Approximately 3.6 percent of employees are contract workers, (ii) Updated WB database on PS employment; data are for 1998. If no source is shown, then the total is calculated arithmetically.

2. Key Institutional and Structural Concerns

There are 13 job grades in the Yemeni civil service. Though the classification system itself is fairly clear, the required educational qualifications are very minimal. Moreover, the legislative framework does not require merit-based recruitment. Even public announcement of vacancies, by law, is only required for positions if the Ministry of Civil Service and Administrative Reform (the Republic of Yemen) (MOCSAR) decides it is essential or if the concerned administrative unit recommends it.

Persons can be promoted from one job grade to the next simply through years of experience, even if their specific job does not change. The general level of educational attainment within the civil service is low. Within the civilian civil service, 13 percent of the permanent staff members are illiterate. Only 1 percent of the civilian civil service holds a graduate degree, an additional 16 percent a bachelors degree, and 23 percent a secondary school degree.

The economic turmoil throughout 1990-95 caused civil service wages to decline substantially in real terms. The overall result is a large, poorly trained and poorly paid public administration. Many ministers estimate that large numbers of their staff are redundant (a commonly cited figure is 50 percent). The recent civil service census, in fact, found that about 35,000 employees say that they are without specific jobs (this also includes political party workers and about 11,000 workers who have been transferred into the civil administration from public enterprises that have been closed).

Average allowances range from approximately one-quarter to one-half of gross pay, depending on the salary grade. Even after factoring in allowances, the ratio of the midpoint of the highest civil service pay scale to the midpoint of the lowest civil service pay scale is only 3.0. Survey results indicate that top managers in the private sector receive nine times the compensation of their public sector counterparts. This imbalance between private sector and public sector wages is reduced for less senior positions, but even at the support services level, private sector compensation was 2.8 times the public sector level (see Table A2.16).

Table A2.16

Republic of Yemen: Average Wages, 1999

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LCU is local currency unit.

Source: Calculated from Figure A2.10 and Table A2.17.

3. Recent and Current Institutional Reforms

Implementation of a wide-ranging structural reform agenda has often been delayed, largely because of the difficulty of mobilizing political support for tough reforms, such as tax and pension reform, particularly in a context of rising oil revenues.

To deal with the labor redundancy problem, legislation was recently passed to establish a civil service fund (CSF) into which redundant employees would be transferred, along with their salaries. In the short term, there would be no cost savings, since staff continue to receive their salaries, but at least they are removed from the employment roster of the line ministry. The aim is to offer CSF staff buy-out packages so that they are permanently removed from the government payroll. This should facilitate restructuring and developing positions and job descriptions for the remaining staff. However, the specific operating rules and procedures needed to make the CSF operational have not yet been established.

The government is presently committed to undertaking civil service reform in selected pilot ministries and agencies, starting in 2001, with a view toward reducing the payroll. It is also preparing to issue biometric cards to all civil servants as a way to identify, and eliminate from the payroll, double-dippers and ghost workers.

4. Key Macrofiscal Concerns

Following unification, the wage bill became a key macrofiscal concern by the mid-1990s, reaching nearly 11 percent of GDP in 1993. Subsequent high inflation eroded the wage bill to 6 percent of GDP by 1997. (By 1996, the average real wage in the public sector was only 15 percent of the 1990 real wage level.) Since then, the government has struggled to contain the wage bill. From 1996 to 1998 a hiring freeze was in place for all sectors except education and health, but the ability to maintain this restraint had evaporated by 1999. A large backlog of unemployed secondary school and college graduates increasingly began to demand jobs in the major urban areas. The government saw increasing public employment as a safety valve to let off the escalating tensions and dissatisfaction among the unemployed, somewhat educated youth. The wage bill rose to 11.5 percent of GDP in 1999 (see Table A2.17).

Table A2.17

Republic of Yemen: The Main Dimensions of the Public Sector Wage Bill

(all units are local currency, 1999)

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LCU is local currency unit.

Sources: GFS 1999, IMF RED tables; and WB World Development Indicators database for population.

The government has limited wage increases over the past few years. However, it has also introduced a number of special laws for specific cadres of workers (such as teachers, healthcare workers, and university professors). The purpose of these laws is to introduce special (higher) compensation to these cadres of workers; in some cases the rationale is justified (such as when allowances are introduced to attract teachers to remote areas). The question is whether this trend of bilateral negotiations with individual cadres of civil servants (most recently port workers) will undermine a revision of the civil service pay scale in a fiscally sustainable manner.

The Fund has provided considerable technical assistance on tax policy and on pension reform. Progress in the tax area has been slow, but the authorities have made progress on a draft pension law that would put the pension system on a sustainable footing. The authorities are awaiting the actuarial results of a follow-up technical assistance (TA) mission to finalize the draft.

5. Need for Including Civil Service Reform in PRSC and PRGF Programs?

The current Fund program included conditionality on civil service reform during 2000, specifically on the retirement of over-age civil servants identified at the end of 1999 by the ongoing Bank project. Explicit conditionality in the area of civil service reform is likely to be shifted to the Bank, but the Fund would continue to seek restraint in the civil service wage bill as part of any program in the years ahead, and would seek to limit real wage increases until progress is made in civil service reform.

6. Benchmarks for the Future. How Will Progress Be Monitored?

Wage bill issues would be monitored as are any other item of government expenditure. This would be the main form of monitoring, in the absence of Fund conditionality in this area.

Zambia

1. Size and Structure of Civilian Central Government

The size of civilian central and subnational government has been reduced from 139,000 in 1998 to about 104,000 today (see Figure A2.11). These reductions exceeded the original target by about 10,000, partly because of the devastating impact of acquired immune deficiency syndrome (AIDS). A study to establish the levels and direction of the required size of the public service was undertaken in 2000 and included proposals, which were subsequently approved by the cabinet, to reduce the size of the civil service to 95,000 and improve salaries for classes of workers that have proved difficult to attract and retain.

Figure A2.11
Figure A2.11

The Main Components of Government Employment in Zambia, 2000

Sources: “Study to Establish the Levels and Direction of the Required Size of the Public Service” March 2000; (ii) Updated WB database on PS employment—1996-99. If no source is shown, then the total is calculated arithmetically.

2. Key Institutional and Structural Concerns

Effective establishment control mechanisms were put in place three years ago. Each appointment must now go to the head of the civil service for approval. There are few ghosts, because the payroll and establishment lists are now nearly the same. Nevertheless, despite these control mechanisms and previous retrenchment, the wage bill is increasing to levels that are thought to be unsustainable, largely due to strong pressures to increase wages.

The employment and pension rights of public service workers are protected by the constitution. To change their terms of employment would require a change in the constitution or a delinkage of their terms of employment. Public employees are unionized and pressing the government for wage increases in advance of general elections that must take place by December 7, 2001. The ruling party is dependent upon urban votes for its political success, which is where the unions are strong.

It is difficult to hire professional staff given low salaries, though allowances partly make up for this. Average annual salaries range from about US$3,500 for senior managers, US$2,500 for judicial officers, US$2,200 for medical doctors, down to US$600 for nurses (see Table A2.18). Some staff members receive housing allowances, and some senior officers also receive cars and other benefits. There are considerable incentives for petty corruption.

In the education sector, there is a clear shortage of qualified teachers in rural areas. Temporary teachers (approximately 4,500) have been hired to serve in rural areas. Since January 2001 newly trained primary school teachers have not been posted to schools because the Ministry of Education has no money to put them on the payroll.

Table A2.18

Zambia: Average Wages, 1999

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LCU is local currency unit.

Source: Calculated from Figure A2.11 and Table A2.19.

3. Recent and Current Institutional Reforms

In the last two years the government of Zambia has “hived off” four public agencies (such as the Wildlife Authority and the National Institute of Public Administration), giving them an independent legislative existence, with the ability to raise revenues, and so on. By agreement, the subventions that these agencies receive from government will be reduced according to specific timetables until they reach zero. This reform reflected a shift in focus for the Bank and the Fund from the number of people to controls on the budget.

The Bank-supported Public Sector Capacity Building Project (PSCAP) sets out to: (a) reduce the government work force and implement a pay reform; (b) prepare the core civil service in policy and public service management; (c) improve financial management, accountability, and transparency; (d) promote judicial and legal reform; and (e) support decentralization. The United Kingdom’s Department for International Development has backed the implementation of an electronic payroll system, at a cost of US$9 million.

The Bank’s Basic Education Subsector Investment Program Support Project (BESSIP), in conjunction with other bilateral and multilateral agencies, supports teacher training, particularly for rural areas. It will also finance construction of more primary schools, which should lead to hiring more teachers.

4. Key Macrofiscal Concerns

Zambia’s total central government wage bill reached 5.4 percent of GDP in 2000, but is poised to be significantly higher in 2001, for the reasons cited above (see Table A2.19). The wage bill is still relatively modest compared with those of other anglophone African countries. However, it is the single largest expenditure item in Zambia’s domestic budget. (Education makes up 50 percent of the wage bill, health 18 percent, and the police 11 percent.) Reducing the wage bill in order to allow increased spending on antipoverty programs is not as straightforward a proposition as it may seem, since civil servants often support poor, extended families.

Table A2.19

Zambia: The Main Dimensions of the Public Sector Wage Bill

(all units are local currency, 1999)

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LCU is local currency unit.

Staff estimates of wage adjustment are included, allocated according to the ratio of defense to nondefense personal emoluments.

Sources: IMF RED tables; and WB World Development Indicators database for population.

The government, the Fund, and the Bank agree that it is important to try to contain the across-the-board wage increases demanded by the unions each year, while raising compensation for senior management.

5. Need for Including Civil Service Reforms in PRSC and PRGF Programs?

Though it is virtually impossible to propose expenditure adjustments while leaving the wage bill untouched, it is also unrealistic simply to insist that wage increases be denied when political pressures are so strong. As such, a well-designed reform program—including some mix of retrenchments and moderate wage increases—should be a component of PRGF programs.

For the past three years PSCAP has been part of a series of adjustment operations. The most recent operation will provide complementary capacity building for a future PRSC. The budgeting process itself should be improved by getting the cabinet involved in setting the budgetary priorities as a result of the support given by PSCAP to the introduction of the medium-term expenditure framework (MTEF) and the linkages established between policy and resources.

6. Benchmarks for the Future. How Will Progress Be Monitored?

Previous conditionality requiring the retrenchment of a given number of civil servants each year has been replaced by a focus on the broader goals of civil service reform. Benchmarks in the new program include (a) progress in pay reform, such as monetization of benefits; (b) financial management and accountability; (c) rationalization of roles, functions, and structures for ministries and agencies; (d) establishment of effective payroll and control systems; and (e) transparency measures.

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    The Main Components of Government Employment in Benin, circa 1998

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    The Main Components of Government Employment in Bolivia, 1999

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    The Main Components of Government Employment in Cambodia, circa 1999

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    The Main Components of Government Employment in FYR Macedonia, 1999

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    The Main Components of Government Employment in Mali, 1999

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    The Main Components of Government Employment in Mongolia, 2000

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    The Main Components of Government Employment in Pakistan, 2000

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    The Main Components of Government Employment in Russia, 1998

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    The Main Components of Government Employment in Tanzania, 1999

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    The Main Components of Government Employment in the Republic of Yemen, 1999

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    The Main Components of Government Employment in Zambia, 2000