The Civil Service Gets a Pay Boost, But Inflation Laughs Last

Sep 21 , 2024.

A nurse in Addis Abeba shares a cramped one-room apartment with three colleagues. Her meagre salary barely covers food and transport. Like many employed by the public service sector, whose monthly average earning is a little over 6,000 Br, she battles the inflation-driven poverty, unable to afford essential necessities.

The nurses' story illustrates a larger crisis gripping the civil service sector, which has an army of 2.3 million. A series of research and surveys have established that it is a demoralised workforce — well, largely — underpaid and overworked, threatening to derail the federal government's ambitious economic reform agenda.

In response, the federal government has undertaken a review to increase wages to cushion the impact of the rising cost of living. Earlier this month, Finance Minister Ahmed Shide unveiled a salary adjustment of 91.4 billion Br (a little over 700 million dollars at last week's exchange rate). Last week, Mekuria Haile, the commissioner of the federal Civil Service Commission, brought civil servants who have served for nearly four decades to be recognised by the Prime Minister. He used the platform to disclose an impending reform.

Nonetheless, these gestures have done little to assuage members of the public sector who feel undervalued. However, revenues from domestic sources remain shockingly low, about 7.3pc of GDP in 2023/24. Such a meagre revenue base leaves little room for wage adjustments or investments in public sector capacity. The public sector wage adjustment targets federal and regional civil service workers, including police, national defence forces, and security personnel.

Finance Minister Ahmed's plan would increase salaries by five percent for high-wage earners and up to 332pc for those at the bottom. The minimum salary would rise from 1,100 Br to 4,760 Br, while the highest salary would see a modest bump from 20,468 Br to 21,491 Br. This could add 60 million dollars annually to the federal government's wage bill. Despite this, nearly half of public service employees would still earn below 6,000 Br, leaving many families in dire poverty. Understandably, civil servants argue that the adjustments do not go far enough to offset inflationary pressures.

According to the IMF, the average public sector wage has not kept pace with inflation, which is expected to reach 30pc and 35pc by early 2025. The public sector employs over six percent of Ethiopia's workforce, but wages stagnate. The wage bill has been maintained at around five percent of GDP (six billion dollars), one of the lowest ratios in the world.

There are differing views on the effectiveness of the salary increases.

Critics argue that previous increments have led to upward movements in prices of essential commodities, becoming inflationary and eroding purchasing power. They advocate for annual, inflation-indexed salary adjustments to curb the impact of inflation on living standards. Proponents contend that with the National Bank of Ethiopia (NBE) adopting monetary policy tightening, inflation has fallen recently, and the wage increase will help lower-wage earners who suffer the most.

Those in the public sector are among the hardest hit by the economic malaise. Inflation has eroded their purchasing power, leaving many unable to afford essential necessities. According to the IMF, some of the lowest-earning public service employees now live below the poverty line. They continue to lack essential services under increasingly difficult conditions, a paradox that created a demoralised and inefficient public sector unable to support the government's ambitious economic reforms.

The federal government's fiscal deficit is narrowing to 1.7pc of GDP in 2023/24, but without a corresponding increase in public sector wages, it risks undercutting its reform agenda. Without fair compensation, it is unrealistic to expect public service workers to carry out reforms effectively. The economic case for better compensation for the public service should be undeniable. It would alleviate poverty among government employees and enhance the public sector's efficiency and effectiveness.

However, the civil service is at a breaking point. A recent World Bank report paints a picture of a system that has expanded rapidly but risks buckling under inadequate compensation, demotivated staff, and failing infrastructure. Over the past five years, the civil service has expanded by an average of seven percent a year. The average salary ranges from 39 dollars to 176 dollars a month, and inflation-adjusted, these wages have lost value.

Low wages and poor working conditions are directly linked to inefficiency within public institutions. In healthcare, inadequate pay has driven many professionals to seek work abroad or join the private sector, leaving the public system understaffed. A similar story unfolds in education, where teachers leave for better opportunities, even as the country struggles to meet rising educational demands.

Federal officials like Mekuria and Ahmed should not afford to treat the public wage bill as a cost to be minimised at all costs. They should acknowledge that the civil service is not merely a bureaucratic machine. It is the engine that will drive the federal government's shift in its economic model from state-led investment to private-sector growth. In that sense, they have a choice to make whether to continue with piecemeal reforms that fail to address core issues or undertake bold reforms that can restore morale, attract top talent, and deliver high-quality services.

Nonetheless, low wages are only the tip of the iceberg.

There is a troubling lack of motivation across the public service. Civil service workers, especially in regional and local governments, report feeling overwhelmed by the volume of work with insufficient resources. A survey the World Bank commissioned a few years ago found nearly half of woreda (local district) civil servants cite inadequate resources — basic tools, functioning IT systems, reliable internet access — as substantial constraints on their ability to deliver services.

At the heart of the problem is a sense of being undervalued. A staggering 80pc of surveyed civil servants indicated that they would leave their public sector jobs for better-paying prospects elsewhere. Many of the most talented individuals are lured to the private sector, further depleting the public service of expertise.

This demotivation would have real consequences for the country's development. In sectors like health and education, which together account for over half a million civil service employees, low morale translates into poorer service delivery. An overstretched and undersupported workforce undermines ambitious targets for improving health outcomes and educational attainment.

Merit-based promotions remain the exception rather than the rule.

Civil service employees frequently cite political connections rather than competence as the primary path to advancement. The lack of meritocracy demoralises talented public service workers and diminishes leadership quality within crucial ministries. Investing in competitive wages is crucial for attracting and retaining talent in critical sectors. The authorities should avoid politically driven appointments and establish a merit-based system that rewards competence and performance.

Federal authorities should also work to modernise public sector institutions, ensuring that investments match pay reforms in training, career development, and social protection. While introducing social insurance reforms was a positive step, the drop in pension coverage has been alarming. They should address the enduring financial security of civil service workers. They should not focus only on short-term wage increases but also on long-term structural reforms.

The federal government needs to address the glaring resource gaps that are crippling service delivery. It should upgrade IT systems, provide reliable internet access, and ensure the civil service has the necessary tools.

Ethiopia is also among the few countries without a national minimum (liveable) wage policy. The situation could improve if a minimum wage were adopted alongside inflation-indexed wages and benefit packages, especially for low-wage earners. The reform and adjustment of civil service salaries should coincide with income tax revisions. And, incentive packages and allowances for amenities may be more effective in improving living standards.

However, the time for action is now, before the civil service collapses under the weight of its own neglect.

PUBLISHED ON Sep 21, 2024 [ VOL 25 , NO 1273]

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