Abstract
This Selected Issues and Statistical Appendix paper analyzes the macroeconomic impact of the HIV/AIDS pandemic, as well as its repercussions on fiscal policy of Namibia. The paper seeks to assess the macroeconomic impact of HIV/AIDS under a successful implementation of Medium-Term Plan III (MTP III) that would lower the prevalence rate to below its 2004 level. The paper also identifies the effect of HIV/AIDS on the real GDP growth rate over the medium term through a source of growth model that estimates the impact of HIV/AIDS on the factors of production.
III. The Namibian Civil Service and the Government Wage Bill17
A. Introduction
49. Namibia faces a difficult fiscal situation over the medium term. As discussed in more detail in the accompanying staff report (1/27/05, www.imf.org), revenues are projected to fall sharply over the medium term, largely as a result of reduced SACU receipts, while new spending needs have emerged, in particular to implement the government’s HIV/AIDS strategy. At the same time, the authorities are committed to keeping their public debt at sustainable levels, which implies the need for generating moderate primary surpluses over the next few years.
50. Within these constraints, a reorientation of government spending seems unavoidable, and Namibia’s large government wage bill is a prime candidate to generate savings. This chapter seeks to identify the reasons behind the high wage bill, in order to identify possible priorities for future reform. Analysis of cross-country data indicates that the main issue is an overly large, rather than an overly paid, civil service. This suggests that, in addition to the authorities’ strategy of pursuing multi-year wage settlements and containing wage increases below inflation, some thought may need to be given to reducing the size of the civil service. Having a smaller civil service would also allow the decompression of wage scales and increased remuneration for senior officials who are undercompensated relative to the private sector.
51. The rest of the chapter is organized as follows. Section B uses cross-country data to put Namibia’s civil service and wage bill in a broader international context and point toward potential areas of concern. Section C relies on more detailed Namibian data to assess how employment, the wage bill, and wages have evolved over time and how they compare across different ministries. Section D discusses past and present efforts to reform the civil service and—building on some of the findings from the earlier sections—highlights particular areas which could usefully be the focus of future reform. Section E concludes.
B. Namibia’s Civil Service and Wage Bill in International Comparison
52. Namibia is expected to spend 14.7 percent of GDP on personnel costs in 2004/05, accounting for more than half of current expenditures and two-fifths of total spending.18 These numbers are very high by almost any standard. Of 44 African nations for which data are available,19 only two have a central government wage bill that is larger relative to GDP—and, in fact, only marginally so—than Namibia’s (Figure III.1). Namibia’s wage bill is more than twice the sample average (7.2 percent of GDP) and considerably more than twice the average for sub-Saharan Africa (6.1 percent of GDP). A similar picture emerges when considering wages relative to total spending, with Namibia placing fifth highest in the sample (Figure III.2). These findings are not explained by Namibia’s position as one of the richest African nations: in fact, other middle-income countries worldwide have wage bills averaging only 8.5 percent of GDP, or 21.6 percent of total spending.
Selected African Countries: Wage Bill
(percent of GDP)
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Note: Data are generally for most recent year in the 1990s available in World Bank civil service dataset.Selected African Countries: Wage Bill
(percent of total expenditure)
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Note: Data are generally for most recent year in the 1990s available in World Bank civil service dataset.53. A country’s wage bill is driven by two factors: the wages paid and the number of workers. Figure III.3 indicates that Namibia’s high wage bill is not caused by overly high average wage levels. Indeed, while the ratio of the average government wage20 to GDP per capita is 4.8 for the typical country in sub-Saharan Africa, and 4.2 for the typical middle-income country, the ratio is only 3.4 in Namibia.21
Selected African Countries: Ratio of Average Government Wage to GDP Per Capita
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Note: Data are generally for most recent year in the 1990s available in World Bank civil service dataset.54. Rather, the problem appears to lie with the size of the civil service (Figure III.4). Central government employment (including the military) accounts for 4.3 percent of the population in Namibia, a higher percentage than in all but five other African nations for which data are available. By comparison, the average in the sample is only 2.1 percent, and the average for sub-Saharan Africa is even lower, at 1.6 percent of the population. It is often, and rightly, noted that cross-country comparisons like these are difficult, given differing country conventions regarding the definition of the civil service; nonetheless, in light of the magnitudes involved, it seems safe to conclude that the Namibian government employs more people, relative to the population, than do the governments of other countries.
Selected African Countries: Central Government Employment
(percent of population)
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Note: Data are generally for most recent year in the 1990s available in World Bank civil service dataset.55. A summary scatter plot of the sample countries illustrates that Namibia has double the wage bill and double the civil service employment of the typical African country (Figure III.5). Relative to other regional and income groupings, Namibia’s wage bill is higher than all comparators, and only high-income countries have civil services that are significantly larger, relative to the population, than Namibia’s (Figure III.6).
Selected African Countries: Civil Service Wage Bill versus Employment
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Note: Data are generally for most recent year in the 1990s available in World Bank civil service dataset.Regional and Income-Group Averages: Civil Service Wage Bill versus Employment
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Note: Data are generally for most recent year in the 1990s available in World Bank civil service dataset.56. The authorities note that Namibia has a very small population spread over a very large area of land, and that, under these circumstances, whatever economies of scale in public service provision may emerge in more densely populated countries are likely to be absent. This may be one explanation for why a relatively high proportion of the population is needed in the government. Indeed, if one considers the absolute number of civil service employees, without normalizing with respect to population, Namibia looks very ordinary: its 85,000 central government workers put it somewhat below the mean in the African sample.
57. Previous staff papers on Namibia have pointed out some historical and cultural factors that could explain Namibia’s high civil-service-to-population ratio. In particular, at the time of independence in 1990, the job rights of incumbent civil servants were protected under the new constitution. In addition, the government hired large numbers of new employees, both to staff new functions (such as foreign affairs) and to benefit previously disadvantaged groups that had been excluded from the benefits of civil service employment under the apartheid regime. A number of “ex-combatants” (i.e., former freedom fighters from the independence movement) have also traditionally been employed in the civil service, but they appear to account for less than 2 percent of the total government wage bill in the 2004/05 budget.
58. The armed forces, however, constitute a significantly higher proportion of the population in Namibia than in other African countries (Figure III.7). The military-population ratio is, in fact, 2.5 times larger than in comparator nations. This may be explained by the armed conflicts in the region. Recall, however, from Figure III.4, that the ratio of all civil servants to the population was 2.7 times larger in Namibia than in the sample group. In other words, the large size of the Namibian defense establishment may be a reflection of the general overstaffing in the civil service, rather than a particularly acute sectoral problem. By contrast, Figure III.8 seems to suggest that there is an unusually large number of police officials in Namibia relative to the comparator countries. No firm conclusions are possible, however, without further analysis of the requirements for police services, the prevalence of crime, and other measures of expenditure efficiency.
Selected African Countries: Armed Forces
(percent of population)
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Note: Data are generally for most recent year in the 1990s available in World Bank civil service dataset.Selected African Countries: Police
(percent of population)
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Note: Data are generally for most recent year in the 1990s available in World Bank civil service dataset.C. Analysis of Namibia’s Civil Service and Wage Bill Over Time and Across Ministries
59. The sharp growth in the civil service after independence was accompanied by a steep rise in the wage bill (Figure III.9). The wage bill rose from about 7 percent of GDP to 17 percent of GDP within the first three years after independence. Since then, however, the wage bill has slowly drifted downwards, reflecting various government efforts to control this spending.
Namibia: Central Government Wage Bill, 1995/96-2004/05
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
60. The slow decline in the wage bill has occurred in spite of a continuous increase in staffing levels, as established, funded, and filled positions have all gradually trended upward during the past ten years (Figure III.10).22 In 2004/05, there were 85,000 filled posts in the civil service, including regional and local government employees (as they are on the central payrolls), as well as education, health, police, and military personnel. On average, between 80 and 90 percent of established positions are filled at any given time; for 2004/05, the fill rate was about 90 percent for the government as a whole, with significant variation across ministries (Figure III.11).23 24
Namibia: Size of Civil Service, 1995/96-2004/05
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Namibia: Percent of Established Positions Filled, by Vote, 2004/05
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
61. As in many other countries, teachers represent the bulk of Namibia’s civil servants, although the share of civil service positions in the area of education has fallen from 39 percent to 36 percent during the last decade (Figure III.12). In the same vein, the share of the health sector has fallen by 3 percentage points during the period. This has been more than compensated by the increased shares of the ministries in charge of defense, police, and prisons, which have jointly risen from 19 percent to 35 percent. A similar picture emerges when assessing the shares of these ministries in total personnel expenditure (Figure III.13).25 However, in comparing Figures III.12 and III.13 it becomes evident that the defense, police, and prison employees are compensated at wages that are slightly below the average, as they account for a larger percentage of employment than of expenditure.
Namibia: Filled Civil Service Positions, by Vote, 1995/96–2004/05
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Namibia: Shares of Total Personnel Expenditure, by Vote, 2004/05
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
62. This finding is confirmed in Figure III.14, which computes the average compensation of workers, by dividing total personnel expenditure by the number of employees. Across the government, average compensation in the 2004/05 budget (including pension contributions) amounts to N$62,378, and thus 3.4 times per-capita GDP, as discussed above (Figure III.3). Underlying this average, however, there is a great deal of variation across votes. For instance, the employees of the Ministry of Regional and Local Government and Housing earn about N$30,000 on average, while those in the Ministry of Foreign Affairs earn more than ten times this amount, perhaps reflecting extra allowances for foreign officers. It may also be true that much of the variation is due to compositional differences: the mix of skilled and unskilled, or managerial and line, employees differs greatly across government, depending on a particular unit’s function.
Namibia: Average Compensation per Employee, by Vote, 2004/05
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Note: Figure for Electoral Commission relates to Main Division 01 (Administration) only.63. About 86 percent of personnel expenditure is related to basic pay (“remuneration”), while government contributions to pensions account for 11 percent (Figure III.15). The remainder reflects cash benefits and allowances (“other conditions of service”).26 While in some African countries cash allowances form a major part of total pay and can sometimes exceed the value of basic pay, this is not the case in Namibia where such allowances account for only 3½ percent of monetary compensation, with some variation across ministries (Figure III.16). It should be noted that insufficient information is available for the prevalence of non-cash benefits, which impairs somewhat an assessment of how streamlined the Namibian system of civil service compensation is overall.
Namibia: Decomposition of Personnel Expenditure, 2004/05
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
Namibia: Cash Allowances as a Percent of Monetary Compensation, by Vote, 2004/05
Citation: IMF Staff Country Reports 2005, 096; 10.5089/9781451828399.002.A003
D. Civil Service Reform Efforts: Past, Present, and Future
64. The Namibian authorities have recognized that addressing the high wage bill is key to fiscal sustainability. As a result, and as discussed above, after an initial surge in the post-independence period, the wage bill has slowly drifted downwards. To some extent, this reflects repeated efforts to rein in the costs of the civil service.
65. In 1995, the Wages and Salary Commission (WASCOM) was formed and assigned to analyze the civil service and its compensation. WASCOM recommended a new and simplified set of payscales along with a system for annual performance reviews. It also recommended that (i) various benefits be rationalized (and certain allowances be folded into regular pay); (ii) government pension contributions be reduced; (iii) a civil service census be conducted; (iv) privatization and commercialization of public enterprises be undertaken; (v) the appropriation for personnel costs be reduced by 2 percent annually over five years; and (vi) labor laws be made more flexible.27 Many of these recommendations were adopted, but the wage bill has remained large, as the downsizing elements of WASCOM’s recommendations were highly controversial. In fact, the civil service continued to grow after the WASCOM report was published (Figure III.10).
66. The authorities have recently taken additional steps to control the wage bill, including instituting a freeze on new hiring and reducing overtime pay and travel allowances. They share the view that the wage bill needs to be reduced but emphasize that civil service reform must have other, broader goals as well. This is in line with the standard approach to civil service reform. Box III.1 summarizes the World Bank’s experience in this area and describes the measures typically incorporated in a civil service reform.
67. One of the major goals of civil service reform, aside from reducing employment and the wage bill, is to rationalize and decompress public payscales, so that the government is able to attract and keep talented staff. Text Table III.1, taken from the WASCOM report, shows that government wages in Namibia lag significantly behind those in the private sector, for many different types of jobs. However, such comparisons must be made carefully, as the World Bank also cautions.28 First, all benefits must be considered. For example, government teachers in Namibia are estimated to earn 8 percent less in salary, but 9 percent more in total compensation (including housing and medical insurance, etc.) than their private sector counterparts. Second, intangibles are important as well: job security, lower stress, and increased prestige may make government work more attractive and reduce the wages that need to be offered. Finally, it is not always appropriate to compare government wages against those in the formal private sector, as the alternative for many civil servants would be taking a job in the informal sector, where wages may be considerably lower.
Namibia: Public-Private Pay Differentials, 1995/96
Namibia: Public-Private Pay Differentials, 1995/96
| Position | Government (N$ per annum) |
Private Sector (N$ per annum) |
Percentage Differential | |
|---|---|---|---|---|
| Non-Management | ||||
| General Laborer | 5,517 | 7,536 | 36.6% | |
| Record/Registry clerk | 12,522 | 16,212 | 29.5% | |
| Data Typist | 13,023 | 19,968 | 53.3% | |
| Technical Assistant | 16,542 | 23,208 | 40.3% | |
| Personnel Officer | 36,607 | 43,086 | 17.7% | |
| Accountant | 36,607 | 47,682 | 30.3% | |
| Research Technician | 37,526 | 45,522 | 21.3% | |
| Engineer | 61,056 | 74,160 | 21.5% | |
| Management | ||||
| Deputy Director | 73,455 | 103,169 | 40.5% | |
| Director | 86,433 | 132,067 | 52.8% | |
| Under Secretary | 101,148 | 160,933 | 59.1% | |
| Deputy Secretary | 104,091 | 184,896 | 77.6% | |
| Permanent Secretary | 111,264 | 231,609 | 108.2% | |
Namibia: Public-Private Pay Differentials, 1995/96
| Position | Government (N$ per annum) |
Private Sector (N$ per annum) |
Percentage Differential | |
|---|---|---|---|---|
| Non-Management | ||||
| General Laborer | 5,517 | 7,536 | 36.6% | |
| Record/Registry clerk | 12,522 | 16,212 | 29.5% | |
| Data Typist | 13,023 | 19,968 | 53.3% | |
| Technical Assistant | 16,542 | 23,208 | 40.3% | |
| Personnel Officer | 36,607 | 43,086 | 17.7% | |
| Accountant | 36,607 | 47,682 | 30.3% | |
| Research Technician | 37,526 | 45,522 | 21.3% | |
| Engineer | 61,056 | 74,160 | 21.5% | |
| Management | ||||
| Deputy Director | 73,455 | 103,169 | 40.5% | |
| Director | 86,433 | 132,067 | 52.8% | |
| Under Secretary | 101,148 | 160,933 | 59.1% | |
| Deputy Secretary | 104,091 | 184,896 | 77.6% | |
| Permanent Secretary | 111,264 | 231,609 | 108.2% | |
68. There exists some anecdotal evidence suggesting that public servants in Namibia receive less compensation than they would in the private sector, and especially so at the higher managerial levels. For example, the tax administration attributed weaknesses in its audit department at least partly to the poor pay auditors receive in the public sector, relative to the private sector. This points toward the need for a decompression of government wage scales so as to ensure that adequate talent is attracted.
The World Bank and Civil Service Reform
A World Bank evaluation report on civil service reform (Girishankar et al., 1999) recognizes “three stylized forms of bureaucratic dysfunction”:
“endemic overstaffing accompanied by unsustainable wage bills”;
“a combination of misaligned organizational structures, poor human resources, and inadequate incentives”; and
diminished “credibility and accountability of state institutions” on account of “cumbersome civil service rules, political interference, and cultures of nonperformance.”
In its civil service reform lending operations, the World Bank has traditionally focused on three types of measures:
downsizing and introducing “hard budget constraints” on the wage bill;
capacity building to allow governments to “do more with less”; and
institutional reform measures to improve accountability and transparency.
The evaluation report found that the outcome of World Bank operations in the area of civil service reform has frequently fallen short of expectations and recommended several key measures for future operations:
The primary objective (downsizing, capacity building, or institutional reform) should be identified, and performance indicators should be developed and standardized;
Capacity-building interventions should be linked to job descriptions and monitorable performance of civil servants and their respective units;
Reforms should be preceded by institutional assessments of administrative systems and analyses of labor market trends, in addition to budget scenarios; and
The feasibility of “promoting results-based management” should be explored.
69. Attracting and retaining talented civil servants would be consistent with other reform efforts in the civil service aimed at improving public service delivery. Various initiatives—including a public servant handbook, a charter process, “e-governance,” improved automation, a civil service college, and the Performance and Effectiveness Management Program (PEMP)—have recently been introduced in response to this need. These initiatives tie into Vision 2030 and other medium- and long-term planning instruments.
70. Nevertheless, a clear vision for the adequate structure and remuneration of the civil service over the medium to long term is still lacking. Preliminary thoughts aim at linking staffing allocations to the priorities identified under the new output-based budgeting system. Similarly, consideration is being given to develop sector-specific staffing strategies. Additional momentum could be gained by making rules on the redeployment of staff from one government unit to another more flexible and introducing a real-time monitoring system of staffing levels (including temporary workers). In addition, and perhaps most important of all, it would seem essential that the authorities develop a medium-term plan to downsize the civil service.
71. The recent decision to freeze hiring is a good sign of the authorities’ commitment to address pressing macrofiscal concerns. It represents a first step toward managing the size of the public sector: if new employees are not hired, while current staff continue to leave employment (through resignation, retirement, or death), a natural process of attrition will take hold. This rate of attrition, however, may be slower than the authorities require, given the need to generate budgetary savings. Moreover, the reductions may not occur in those segments of the civil service which the authorities would optimally downsize. A hiring freeze could also create substantial problems, as it may affect the government’ ability to function. For instance, the Inland Revenue Department currently cannot hire additional auditors although an internal study has revealed that each additional dollar spent on audit could yield up to twelve dollars in revenue. Against this background, a hiring freeze can only be considered a stop-gap measure that cannot substitute for a properly designed medium-term employment strategy.
72. Outright layoffs, especially at a large scale, would probably be neither desirable nor feasible. As the authorities note, employment opportunities in Namibia are scarce, and the government has traditionally played a social role in providing jobs. Although this may not be the most efficient mode of assistance—targeted grants and subsidies may be more appropriate—layoffs would likely cause major social and political difficulties. In addition, civil servants have legal protections that may make involuntary layoffs impossible. Nevertheless, studying staffing needs of the various ministries and reallocating staff accordingly, eliminating possibly redundant government agencies, and implementing some targeted measures to accelerate the departure of some civil servants, may all be necessary to effect a sustained reduction in the wage bill. In this process, it is important to ensure that the targeted outputs of government services can be delivered.
73. As noted by Rama (1999), countries frequently choose to offer severance packages to induce voluntary retirements. These packages, however, are often poorly designed and end up being more generous than necessary. Moreover, severance packages are usually accepted by the most talented civil servants—those the government would like to retain—given that they are the ones with the best job options outside the government sector. Designing a system to avoid this adverse selection can be difficult in practice. Many countries have suffered from what Rama calls the “revolving door,” by which talented workers are retrenched and have to be rehired later so that the government can function: in such cases, the severance packages are wasted. It is also important to note that downsizing the civil service may not help the fiscal situation in the short term: not only may severance packages be needed, but laid-off workers will also likely require additional safety-net protection from the government.
E. Conclusions
74. The Namibian authorities have recognized that the size of the wage bill limits budgetary flexibility at a time when revenues are likely to decline and new spending needs are emerging. They have adopted various strategies to contain the wage bill, including relying on multi-year wage settlements and trying to constrain wage increments to less than inflation.
75. Nevertheless, in light of the considerable fiscal challenges ahead, the authorities may want to consider developing a more determined strategy to address the key problem underlying the large wage bill: the size of the civil service. Efforts to reduce the civil service, which need to be well planned and prepared, could also allow the decompression of wage scales and increased remuneration for senior officials, who are undercompensated relative to the private sector. Such efforts, together with ongoing reforms to enhance public service delivery, should provide Namibia with a modern and efficient civil service.
References
Girishankar, Navin, et al. (1999), “Civil Service Reform: A Review of World Bank Assistance,” OED Report No. 19599. [Available at http://www1.worldbank.org/publicsector/civilservice/evaluationofdonor.htm.]
Government of the Republic of Namibia (2004), Estimate of Revenue and Expenditure for the Financial Year 1 April 2004 – 31 March 2005.
International Monetary Fund (1997), “Namibia: Recent Economic Developments,” Country Report No. 97/119.
Rama, Martin (1999), “Public Sector Downsizing: An Introduction,” World Bank Economic Review, Vol. 13, No. 1.
Wages and Salary Commission Report (1995). World Bank, http://www1.worldbank.org/publicsector/civilservice/
Prepared by Koshy Mathai (FAD).
Throughout this chapter, we will refer to cash wages and salaries along with cash allowances and other benefits. In-kind benefits (such as government housing, vehicles, and mobile phones) are typically not captured in government wage bill statistics, although they are, in many countries, a very important component of compensation.
The international comparisons are based on a World Bank dataset from the website http://www1.worldbank.org/publicsector/civilservice/. Unless otherwise noted, the figures for Namibia relate to 2004/05, while the cross-country data are for the most recent available year in the 1990s. The dataset has some coverage issues, and thus undue focus should be placed neither on any individual comparator’s ranking under different measures, nor on cross-figure comparisons of rankings for particular countries.
The average government wage is constructed by dividing the government wage bill by the number of employees.
These data alone do not imply that Namibian civil servants are underpaid: GDP per capita can be misleading when the income distribution is highly skewed. Section D below, however, presents additional information to argue that Namibian civil servants receive less than their private sector counterparts, particularly at the higher echelons, which may make it difficult to attract and retain talented staff.
Similar to the arrangement in other countries, the Public Service Commission determines the “establishment”—the approved number of civil service posts. The Ministry of Finance may not choose to provide funds to finance all of these positions, and thus there may be fewer “funded positions” than “established positions.” And, given rigidities in the formal process of hiring new civil servants, not all funded positions are always filled.
The figures refer to “votes,” rather than ministries. A vote is a government unit that receives its own budgetary appropriation. Each ministry generally corresponds to one vote, although some of the larger ministries are represented by multiple votes.
According to the law, the establishment is never supposed to be exceeded. Even in the case of short-term labor needs, the Public Service Commission has to authorize temporary expansions of the establishment. In practice, however, there are presumably exceptions to the rule, as indicated in Figure III.11.
This expenditure includes basic pay, cash allowances, and government pension contributions. In-kind benefits are excluded, as are travel expenses (e.g., per diems), which are regarded (as in most countries) as spending on goods and services.
As noted earlier, these calculations exclude in-kind benefits altogether.
For more details, see Box 2 of Country Report No. 97/119.
See http://www1.worldbank.org/publicsector/civilservice/ for more details.
