IMF blow for civil servants

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. . . as Bretton Woods institution advises government to cut public sector wage bill

Bereng Mpaki

THE International Monetary Fund (IMF) has dealt Lesotho’s civil servants a major blow in their quest to arm-twist the government into awarding them a massive 25 percent salary hike.

This after the IMF recommended that the state reduces the public sector wage bill among measures aimed at containing its huge spending.

Should the government heed the advice, this would end the hopes of teachers, nurses, police officers and other public servants who are pressuring the authorities to increase their salaries by 25 percent in this current financial year.

The civil servants were only awarded a five percent hike for the 2022/23 financial year which began on 1 April 2022. They have however, rejected the “paltry” increment and a fortnight ago, they vowed to stage a series of protests to force the government to award them a whopping 25 percent increment.

They even vowed that come elections, they would vote against the governing parties if their demands were ignored.

Thus far, the government has refused to budge citing budgetary constraints.

And in what could be a major blow for the civil servants, the state has found an ally in the IMF.

Instead of awarding any increments, the Bretton Woods institution has urged the government to reduce the public sector wage bill among other measures aimed at containing its huge spending.

In a weekend statement, the IMF whose board of directors said there is need for Lesotho to contain its public spending as it is not sustainable.

The statement was released in the aftermath of consultations between the government and the IMF board of directors. The statement does not say where the consultations were done save to say that they were concluded on 1 June 2022.

“The IMF directors have emphasised the need for a growth-friendly fiscal consolidation to reduce imbalances, rein in public debt, and rebuild policy space,” the IMF statement says.

“They called for measures to contain current spending, including the public sector wage bill, reprioritise social spending to focus on the most vulnerable, and rationalise capital spending.

“Directors agreed that fiscal adjustment should be complemented by reforms to public financial management (PFM) and revenue and tax administration. They encouraged the authorities to finalise and submit the Public Financial Management and Accountability Bill to Parliament and implement regulations to improve the budget process and minimise arrears.

“Directors concurred that monetary policy should focus on price stability and maintaining adequate reserves to safeguard the exchange rate peg. They encouraged the authorities to strengthen central bank independence and coordinate closely across institutions on fiscal and monetary policies for credible and effective macroeconomic management,” the IMF said.

The Fund noted that since 2020, Lesotho had been adversely affected by a host of challenges including the Covid-19 induced slump in economic activity, declining revenues from the Southern African Customs Union (SACU) and the impact of Russia’s war with Ukraine which has resulted in price hikes of most basic commodities.

“Despite a swift response by the authorities, the fallout from the pandemic—including delays to large infrastructure projects, supply chain disruptions, layoffs in the textiles sector, and weak external demand—has weighed on social and economic development, amplifying legacy structural challenges.

“Growth has been revised down to 2, 1 percent in the 2021/22 financial year after contracting by six percent in the 2020/21 financial year, and is forecast at 2, 7 percent in the 2022/23 financial year and 1, 4 percent on average thereafter. The war in Ukraine has hindered food imports, exacerbating agricultural disruptions due to floods and the pandemic. Global price increases in food and fuel, which account for over half of the consumer basket, are hurting the vulnerable, with inflation expected to reach 6, 8 percent in the 2022/23 financial year.

“Fiscal performance was better than expected in the 2020/21 financial year. However, public expenditure has continued to increase, with the recent decline in SACU transfers weakening the external position. Recent cases have highlighted gaps in public financial management and efforts to restrain expenditure have been undermined by growing domestic arrears, as spending pressures mount ahead of the autumn 2022 elections,” the IMF said.

The IMF’s call for a reduction in the public service wage bill is certainly sweet music to the government. The recommendation is consistent with the IMF’s position over the years where it has been urging the government to reduce its wage bill and only award performance-based increments. However, the recommendation is unlikely to be well received by civil servants who are pressing for salary increments in the face of ever-escalating prices of basic goods and services.

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