This article first appeared in my weekly column with the Business Daily on September 27, 2015
Kenya has been in the throes of a teacher’s strike rooted in the fact that government has failed to pay teachers a 50% pay raise despite being ordered to do so by the courts. Government’s argument is that they don’t have money. What does government mean when they say they don’t have money? And is that the only economic factor to consider? I am of the view that teachers should be paid, so what’s the problem and can these issues be resolved?
Well let’s look at concerns economists may have that government will face in implementing a pay hike for teachers.
Firstly, raising teachers’ wages will raise recurrent expenditure. This column has already analysed government spending patterns; recurrent spending is already too large and has to be brought down. Analysis by the International Budget Partnership indicates that in 2013/14 government spent 78% of the budget on recurrent expenditure. For 2014/15, recurrent expenditure will eat into 63% of the budget. This year, the recurrent vs. development estimate split stands at 52% to 48%. Implementing a wage increase for millions of teachers will push the recurrent budget up. This is a concern.
Secondly is the budget deficit; the 2015/16 budget deficit was due to be 8.7 per cent of GDP. Implementing the teacher’s pay rise may raise this to 10-11 percent of GDP according to some analysts. Why is this a problem? Well the larger the budget deficit the more pressure there is on government to borrow to meet this gap. The government is already in significant debt; KES 2.5 trn. Frankly, there is already concern on how government is going to service this debt, particularly the part that is foreign-denominated in the context of a weak shilling. It is unlikely government will borrow more to pay the teachers.
The final issue is liquidity. The value of the Kenyan shilling has been tanking and although it seems to be stabilising, it is doing so at a much weaker point than it has ever been for years. This has negative implications for servicing foreign- denominated debt as well as meeting the country’s import bills. What does the teacher’s strike have to do with all this? Well remember, the government is trying to stabilise and eventually strengthen the KES and there are several factors that affect the value of the shilling. One such factor is how much money is moving through the economy. The CBK monitors and tries to control how much KES is flowing through the economy. Because of the decline of the shilling, CBK has been trying to reduce the amount of shillings in circulation to control KES depreciation. In fact, the CBK has sought to drain excess liquidity from the market by offering Sh6 billion in repurchase agreements and get that money out of active circulation. The concern is that if teachers are paid, it will inject significant amounts of shillings into the economy and this may put additional downward pressure on the value of the KES. As said before, this will have negative effects on the government’s ability to meet import bills and service foreign-denominated debt. So this may be another factor informing government’s reluctance to pay the teachers.
These are some of the factors behind why Kenyans are being told by government that if teachers are to be paid, taxes will be hiked. But the truth of the matter is that there is a legal and, in my view, moral obligation to implement the wage increase. Government should look at the gravity of the country’s economic position and use this strike to remedy the problems. How?
Well on recurrent expenditure, government simply must reduce this in any case. There is clearly concern in the minds of many Kenyans on the amount elected officials earn in this country. So government can implement austerity measures starting with cutting the salaries of elected officials. Linked to this is fiscal deficit issue; government has to cut spending, period. The problem Kenyans seem to have is that elected officials are willing to raise their wages but when it comes to teachers, Kenyans are told that government is broke. This anomaly can be remedied by cutting the wages of those officials and direct that money to teachers.
Then there is the issue of corruption at both central and county government levels. Kenyans know public funds are being misused by public officials and feel that if corruption were curbed, there would be money to pay the teachers. Thus until Kenyans see the government punishing corrupt public officials and getting a handle on corruption, there is likely to be intolerance with the notion that there’s ‘no money’ to pay the teachers.
The liquidity issue is the only area in which I also have concerns but frankly government should be developing strategies to, for example increase forex earned by the country, so that there is less pressure to reduce KES circulation to control shilling depreciation.
Importantly, the challenges government will have in implementing the wage increase should not be taken to be reasons as to why government should not pay, rather the factors are indications of structural problems in the economy that government ought to be addressing in any case. The teachers’ strike simply provides fresh impetus for the challenges to be faced and addressed.
Anzetse Were is a development economist; email: firstname.lastname@example.org