Public Sector wages, salaries must be fiscally sustainable

Dear Editor,
My attention was drawn to a letter published in the July 28th, 2023 e with the caption: “use of the inflation bogeyman entraps Guyanese workers in a perpetual state of dependency”. The author essentially argued that the Government utilizes the inflationary argument as an excuse to deprive public servants wage increases.
The author cited an example wherein the Government paid a 26.66% pay hike to public servants in the year 2000. In that year, the projected inflation of 9.5% fell to 5.9%; and in 2001, inflation reached 6%. For some reason, the author is of the view that 6% inflation is not “inflationary”, or considered high inflation. The fact is that inflation rates above 2% are always considered high, hence the reason why the desired inflation target within a macroeconomic stability context is typically 2%. So, the author is wrong to believe that the substantive pay hikes during that period did not fuel inflation. They actually did, to some extent.
However, the inflationary impact is not the only concern and determinant of wage increases, especially within the public sector. For reasons more than inflationary concerns, wage and salary increases can only be accommodated within a sustainable framework. And this is where divergent views between the Government and the Opposition exist. The budget allocations for total employment costs from 2020 through 2023 show that total employment costs increased cumulatively by 47.13% in just three years. Total employment costs moved from a position of $71.8 billion in 2020 to $105.7 billion in 2023, or were increased by $33.8 billion. There are three factors that contribute to this level of increase: (1) the normal incremental increase for cost of living; (2) the adjustments made for anomalies across the various public sector agencies, aimed at regularizing wages and salaries across agencies; and (3) provisions made for new recruits in the system.

In order to ascertain whether an organization or a government pays its employees a decent wage, one has to examine this question from a realistic, practical, and financially sustainable standpoint. To do so, one has to look at the total employment cost as a percentage of revenue. Generally, there is a universal benchmark for this ratio, in keeping with financial management best practices, and that is: total employment cost should be in the region of 15% – 30% of revenue.
In the illustration below, the total employment cost for the Bank of Guyana represents 22.36% of the bank’s revenue. In the case of GBTI, total employment cost represents 35%. Republic Bank’s total employment cost represents 26%, even though Republic Bank raked in almost $1 billion more in revenue compared to its main competitor GBTI. And in the case of the Public Service, total employment cost represents 33.21% of central Government’s current revenue.
In 2023, total employment costs represent 33.13% of central Government’s total tax revenue. Other recurrent expenditures, such as administrative costs, represent 77.5% or $248.4 billion of central Government’s tax revenue.
Moreover, in comparing total employment cost relative to current revenue for Guyana and Trinidad & Tobago, it was found that for the period spanning 2011–2021 (10 years), total employment cost for Guyana in 2011 represented 26% of current revenue, which increased to 33.21% in 2021. While in the case of Trinidad & Tobago (which is a more mature petroleum producing country, though now in a declining stage), a country considered to be the most developed economy in the Caribbean, and is in fact four times richer than Guyana in terms of GDP and per capita income, in 2011, total employment cost represented 15% of current revenue, which grew to reach 27% by 2020 – remaining below that of Guyana.

Within this perspective, in the years when the Trinidad economy was doing much better on the back of its oil and gas resources, Guyana allocated more resources than Trinidad to pay public servants, and it continues to do so above Trinidad in 2020 – relative to the country’s level of current revenue. Hence, with these two examples, it can be said that public servants in Guyana are compensated decently when compared to other organizations in Guyana, its regional counterpart, and benchmarked against financial management best practices globally. In other words, if total employment cost for the public sector represented just 15% or less of current revenue, then this can be described as poor. However, where employment cost represents 30% or even slightly above, this is in line with the highest paid wages organizations and governments can afford to pay their employees relative to the revenues generated.

Oil Revenue
The NRF Act establishes that the withdrawals from the NRF shall be used to finance the following:
a) National development priorities, including any initiative aimed at realizing an inclusive green economy; and
b) Essential projects that are directly related to ameliorating the effect of a major natural disaster.
Consequently, the revenues earned from the oil resources ought not to be treated as the traditional organic revenue for the Government. Oil is a volatile commodity, the global industry is declining, and therefore, the larger part of the fund needs to be utilized to accelerate Guyana’s development in physical infrastructure, social infrastructure, national security, improved competitiveness etc., all of which will ultimately result in long-term sustainable income being generated for years and generations to come, well after oil is no longer a lucrative commodity. This reality is quite inevitable, premised on the global agenda of energy transition to cleaner and renewable sources of energy.
In other words, with the oil wealth, policymakers have a responsibility to utilize and manage the resource wisely and prudently to fast track Guyana’s development, wherein what Guyana could potentially achieve in 50 years without oil, we should be able to achieve in half the time, or 25 years. This is essentially what the oil resource means for Guyana, and how it should be treated.

The total employment cost for public servants is within the highest range that is deemed to be fiscally sustainable relative to the current revenue excluding withdrawals from the NRF. Practically, in order to pay better wages to public servants and to increase the overall wealth of the country, it is critical to focus on private sector development, continue to incentivize the private sector to attract new investments both locally and from FDIs, and diversify the economy. In so doing, the organic revenue of the Government will grow in a more broad-based and sustainable manner (horizontal growth). Any other approach to growth (vertical growth) will be a recipe for bankruptcy and economic devastation in the long-term, not only for public servants, but for every household and private enterprise.

Yours respectfully,
Joel Bhagwandin