Higher wages to boost consumer spending

The around N$1.25 billion increase in nearly 109 000 civil servants’ salaries in 2022/23 could boost consumption spending by more than N$4 billion in the current fiscal year.

“One could argue that high public wages support economic activity through consumption spending, which accounts for 75% of gross domestic product (GDP) on average,” Simonis Storm (SS) said in their analysis of finance minister Iipumbu Shiimi’s mid-year budget review (MYBR) tabled last week.

Government in August approved a 3% salary increase, as well as benefits for civil servants to avert a nationwide strike, pushing up the total public remuneration bill in 2022/23 to nearly N$32.1 billion. Also increased in this amount is N$747.4 million of additional personnel expenditure, the bulk of it to health and social services, as well as education, arts and culture to cater for projected shortfalls on recruitment.

SS quoted the Namibia Statistics Agency’s (NSA) Public Wage Index report, which states that central government has 108 875 employees with 61.8% being in public administration, 28% in education and 10.2% in health.

“Simply assuming all public workers get the same salary, we estimate that each worker receives an average monthly salary of N$22 656 which is far above the national average monthly salary of N$8 712 (the official national average monthly salary according to the latest NSA Labour Force Survey in 2018 adjusted for inflation),” SS said.

“We calculate a marginal propensity to consume of 0.69 for Namibia. This implies that for every N$1 earned, Namibians typically spend 69 cents and only save 31 cents. Using this, we then estimate a money multiplier of 3.23, which means that every N$1 of income generated or spent leads to N$3.23 of additional spending throughout the economy/country,” the analysts added.

LOW RETURN

Despite the increase, Namibia’s ease of doing business is deteriorating, implying that there is a low return on public salaries as inefficiencies in public administration services still remain, SS said.

Commenting on the higher salaries and its impact on consumption spending, SS said: “However, this is not the kind of economic support that public finances should be focusing on - especially given the low return on public wages. Ultimately, we need to become an industrial nation which needs more investment – and not consumption – spend.”

Cirrus Capital said government has done well to hold off on civil service wage adjustments until now, and to successfully negotiate below-inflation wage adjustments for this year.

“However, this 3% wage adjustment will need to be carried forward indefinitely, thereby raising personnel expenditure over the rest of the MTEF [medium-term expenditure framework] relative to prior forecasts.”

The latest MTEF shows government’s total wage bill increasing from an estimated N$32.1 billion in 2022/23 to nearly N$34.4 billion in 2025/26.

“Personnel expenditure is incredibly sticky and remains the single largest challenge on the expenditure front. Despite the overall expenditure and revenue increases, the wage bill still accounts for 50.0% of total revenue and 42.9% of total expenditure (or 46.3% of operational expenditure),” Cirrus said.

FREEZE

In his MYBR speech on Tuesday, Shiimi said: “The Wage Bill Committee has produced a comprehensive draft report on findings and recommendations regarding the containment of the public sector wage bill.”

According to Shimmi, the report is being “scrutinised and analysed” by the Office of the Prime Minister before submission for clearance and approval by the Cabinet Committee on Public Service.

At the same time, to manage expenditure and realise savings in the short-term, a temporary public service recruitment freeze has been imposed for the remainder of the 2022/23 fiscal year.