In October 2016, Minister of Finance, Kemi Adeosun disclosed that the Federal Government has taken out about 33,000 Ghost workers from the federal pay roll and succeeded in reducing the monthly wage bill from N165 billion to N145 billion. This was widely reported in the media. It translates to a monthly savings of N20 billion or about N240 billion per annum and would mean that annual personal cost would be N1.74 trillion. Kemi also talked about how the much hyped efficiency unit in the ministry is helping cut costs. However, the figures coming from the budget office does back the much talk about cost cutting taking place in the public service.
The figures from the just released Medium Term Expenditure Framework (MTEF 2017-2020) shows that the Federal Government carrying cost of its public servants is rising despite declining revenues and much talk about cost cutting. The first major surprise is in the 2017 half year expenditure breakdown of the Federal Government which shows that the government overshot its personnel cost by N406 billion in the first six months of 2017.
Total personnel cost as approved in the 2017 budget is N2.17 trillion. This means that the federal government planned to spend an average of N1.08 trillion in the first half of the year running from January to June and another N1.08 trillion from June to December of 2017 on its personnel. But as at June, the break down in the government medium term fiscal expenditure framework shows that spending on personnel has hit N1.49 trillion, which is N407 billion higher than what it should have spent for the period. This basically means that the budget office and ministry of finance made a N407 billion error in their estimation of personnel cost for 2017.
And interestingly the error had nothing to do with underestimating gratuities or retirement benefits. The figures show the error had to do with the estimation of salaries paid to public servants. Total budgeted salaries for the year was estimated at N1.9 trillion but actual salary paid out in the first six months of 2017 stood at N1.35 trillion, which is N404 billion more than what was budgeted. There is no explanation in the medium term expenditure framework for the significant jump witnessed in personnel costs, especially, the salary component considering that the government has often boasted of eliminating ghost workers on its pay roll. The sharp rise in personnel cost indicates even if it is true that ghost workers are being eliminated from the payroll, then possibly the ghost workers are being replaced with real human beings whose wage bill are even higher than the ghost workers that they are replacing.
There are also legitimate questions on when and how these new workers on the pay roll got on a board since there has been no indication that the government is employing even though there have been many allegations of secret recruitments into the public service. These allegations of secret recruitment are what is likely now showing in the rising wage bill of the government.
If the half year trend is repeated in the second half of 2017, what we are likely to see is that the government will over shoot its planned wage bill for the year by approximately N800 billion. This will take total personnel cost for the year to about N3 trillion, the highest ever incurred by the Nigerian state. It would also basically mean that the government has almost doubled personnel cost in one year from about N1.6 trillion in 2016 to N3 trillion in 2017. This doubling of personnel cost would happen even without the government agreeing to a new minimum wage which the labour unions have been pushing for.
The current minimum wage at N18,000 is considered unrealistic and labour unions have been demanding as high as N56,000 as new minimum wage. Even if at the end of negotiations, labour gets double of what they are currently being paid, which would not be considered extreme considering the impact inflation and naira depreciation has had on wages, that could significantly impact on the government’s current wage bill even further.
Rising personnel costs comes with significant risk to the economy, especially considering the historical low productivity of the public service. The major risk is in crowding out investments in capital expenditure. In the half year to June 2017, while the government spent N1.5 trillion on its personnel, capital expenditure was nil within the same period. The excuse given by the federal government is that the capital expenditure aspect of 2016 budget was still running hence the zero capital expenditure within the period.
However, even in the 2016 budget, personnel cost consumed N1.69 trillion while total capital expenditure for the same period was N1.22 trillion, N490 billion less. The government had actually budgeted N1.6 trillion as capital expenditure for 2016, but was only able to release N1.2 trillion, a shortfall of N368 billion. The practice over the years, has been that, the government is always able to meet its recurrent expenditure 100 percent as contained in the budget and sometimes overshoot recurrent expenditure, while it struggles to meet its capital expenditure. In 2017, the indication is that the government will not only meet its recurrent expenditure, especially personnel cost, but it will surpass it while capital expenditure will underperform significantly.
Already, two months to the end of 2017, only 20 percent of the government’s planned capital expenditure has been released. Minister of Finance, Adeosun has already hinted some of the capital expenditure will be rolled over into 2018 budget. This means that of the N7.4 trillion budget in 2017, we are likely to see 80 to 90 percent of it being spent as recurrent expenditure. This is already noticeable in the N3.1 trillion spend by the government in the six months to June, all of which went into recurrent expenditure including debt service obligations. If it is taken into consideration that within the six-month period, the government also raised N2.5 trillion in debts, then it is obvious the borrowing went into sustaining public service salaries and servicing the country’s rising debts.
It is understandably politically risky for the government to downsize its public service workforce. But it is difficult to justify why personnel cost is rising at a time when it should be going down, especially at a time of high level rhetoric about reducing the cost of governance and when the government is struggling with its revenues and borrowing heavily. Obviously, something has gone totally wrong with Kemi’s ghost bursting efforts in the public service, and that has resulted in an N800 billion extra wage bill in single year most of which will be funded from new debts. Something has really gone wrong with Kemi’s ghost bursting efforts.