Monday, January 25, 2010

What the government and the civil servants need to understand on the issue of salaries

The government announced pay cuts for civil servants during the last quarter of 2009, and revealed plans for gradually reducing the number of civil servants. On various occasions, the president has tried to explain his strategic economic reforms, and overall macroeconomic policies adopted by the present government. He’s outlined the reasons for his drastic measures of reducing government recurrent expenditure on salaries, and increasing electricity tariffs and stop subsidizing the State Electric company.

The years following 2004 tsunami, the macroeconomic management can be best described as ‘stupid’, ‘politically-motivated’, and mostly unsustainable. Government’s current expenditure hiked to unsustainable levels, mostly through increasing salaries, and huge promotions. This was followed by formation of many independent commissions and institutions, again with huge salaries. Meanwhile, salaries of the Parliamentarians, and ministers also increased drastically. All these led to extremely high government budget deficit, that was financed through printing Rufiyaa. This led to increasing inflation, as equivalent goods and services were not produced, and the productivity in the economy did not improve.

International financial institutions like IMF, World Bank, and Asian Development Bank, all advocate reducing government deficit and stop printing Rufiyaa to finance the deficit. ( government expenditure has to be financed through revenue collected from taxation. Not by any means through printing Rufiyaa. Whenever we print Rufiyaa, we’re adding up to our problems, as it’d lead to higher inflation, and difficulties in obtaining US dollars. These financial institutions who provide assistance to us, have been advising us to reduce the redundant civil servants, stop subsidizing STELCO (by increasing the electricity prices), and reduce the government wage bill.

The rationale is: we cannot continue paying higher salaries to many staff who do not add any value. In other words, we pay salaries to government employees in order to provide some services to the public. We need to reduce the number of government employees, so that redundant, or unnecessary staff are removed, so that they can get employed elsewhere. Regarding the salaries, it is common sense that anybody, even if it’s the government, cannot continue to pay higher salaries, if it cannot raise enough revenue to pay for that. So, reducing salaries would be the best option in order to reduce government expenditure and deficit. If not, deficit will have to be financed through borrowing or printing Rufiyaa, both options being bad for the economy.

Reducing salaries of civil servants, reducing the number of civil servants, and increasing electricity prices, are all political suicides for a president or a government. However, the current government was forced to take these steps, as it was recommended by the IMF, and many other donors. Further, the assistance package provided by IMF requires government to reduce the deficit levels to certain levels or targets, and for such conformity, these steps have become necessary. So obviously, the government’s policy and decisions are for the future benefit of our country.

But, why are the civil servants, and the civil service commission still protesting, and demanding higher pay? Answer is simple; although the government’s economic plan is prudent, and is necessary for the country, the sincerity of the government is being questioned by the civil servants and the public. Why do I say that?

If there were same principles applied to all employed staff of the state, including, civil servants, political appointees, staff of independent commissions, and parliamentarians, then, it is more likely that the civil servants would have accepted a lower pay even for the whole year. However, what we see is that political posts keep on increasing, and the salaries of parliamentarians and some of the independent institutions were not reduced.

The IMF and those institutions advise to reduce the total wage bill. The total wage bill includes the salaries of all political posts, parliamentarians, and civil servants. So, if we are talking about reducing the number of civil servants by laying off redundant workers, then the same principle needs to be applied to political appointees as well. Redundant political appointees need to be laid off. Just like civil service staff are hired and employed based on their performance, need, and productivity; even political appointees should be appointed and employed based on the need, their performance, and the productivity. The salaries of political appointees and the civil servants, and even the parliamentarians are paid by the same budget; the state budget. Hence, in order to show sincerity, and commitment to reducing government expenditure and deficit, government needs to apply same principles, and treat everybody impartially. Government needs to lead by example.


  1. I have read the IMF conditions and IMF statements and though it calls for reforming the civil service, it does not call only for the reduction of civil servants salary ..why does deficit, devaluation, inflation & other economic dire terms come into play in regard to the salary of civil servants? What about the highly paid political figures like Councilors, state ministers etc? They all receive about 3-4 times over the salary a mere civil servant receive, so why don't these political figures deduct their salaries? Why the double-standard? why not the same treatment for all?

    It is interesting to note that almost all of those who support Min. of Finance's decision to give the reduced salary are non-civil people /r those that work in private sector or politically inclined people. Whether the salary remains reduced, these people do not get anything taken from their salary.

  2. An interesting eyeballing of IMF advice :)

  3. And also, regarding the electricity tariffs, the actual cost-based pricing needs to be followed. The government cannot continue to subsidize everybody, it wont be sustainable.

    Now at least people will be aware of actual costs of producing electricity in maldives, and try to economise, and be careful in using electricity. I mean people will at least try to minimise wastage.

  4. i guess the Government and the CSC will have to know who are adding value. and we also need to make a decision on the decetralisation bill. if not, the president will keep appointing those cousellers and so will increase the political appointees. it is a power given by the constitution which the president will be more than comfortable to exercise.

  5. what is mma doing about this? there have been no public statements even through all this big hype about the civil service bill and now the two parties are in court. usually a central bank would step up and at least make a public statement to stabilise the economy. where are the highly paid executives of this organisation in times of national economic crisis?