Public Service Reform Program in Tanzania (PSRP) Medium Term Pay Policy

n Population: 32,128,480 n GNP per capita: $246 n Growth: 4.6% n Inflation: 7.9% Tanzania - Few Facts

Tanzania an interesting case for pay reform n Classic collapse of the state n Cost containment phase n Serious effort at civil service reform incorporating structural reform n Addressing pay issue as a key feature of its civil service reform

What was the situation in Tanzania before the civil service reform (late 80s)? n Public expenditure framework expanded far beyond what GOT could afford n Public administration overstaffed/underfunded n Establishment/payroll control fell into disuse n Wage bill was out of control n Civil servants demotivated : – downward trends in real incomes – political interference in appointments and pay decisions – growing informality

What did the first phase of the reform achieve? ( ) n Medium term pay policy approved n Total number of employees reduced from 355,000 to 260,000 n Pay structure rationalized/decompressed from 9:1 to 21:1 n 75 % increase in average public service pay in real terms n Control on employment, wage bill institutionalized – central personnel database – computerized payroll system – ad hoc and non transparent allowances consolidated in basic salary

The agenda for the Public Service Reform Program( )- Remaining issues n Workforce still too big for resources available n Cost containment issues not yet fully addressed n Capacity and performance undermined by low pay (informality continues) n The take home pay has not improved. Why? n New salary levels (1997) were below total monetary benefits enjoyed by the upper-middle and top levels n Changes in tax rates for personal income reduced net salary incomes n Annual salary adjustment too low

Afocus on the Public Service Pay Policy n Primary Policy Goal : – long term – long term: to raise the minimum base salary to the level of the minimum living wage (MLW) – minimize use of non-salary benefits – Implement performance-related pay system n Medium Term Policy Objectives n Medium Term Policy Objectives : – enhance pay for technical and professional staff – develop core professional and managerial cadre

The Pay Policy (cont’d) n Continue public service rationalization and efficiency measures n Promote rationalization of donor compensation for public servants n Improve personnel management practices

What has been done so far n Pay reform implementation study : – wage-bill to GDP ratio of 4.9% to be adopted over the medium term – linkages pay/performance based on transparent appraisal system – new grade structure (fewer bands, multiple steps) – Local authorities to be strengthened to manage resources and personnel functions – new approach to donor supplementation of salaries or “local cost compensation ”

Local Cost Compensation or “donor supplementation” n Extent of donor supplementation: $ million/FY99-00 n Effects of donor supplementation : – Unsustainable – Does not promote long term capacity – Reported as development expenditure therefore does not reflect true cost of delivering services

How does Tanzania intend to deal with this issue? A proposal n Scheme to complement pay policy and to support an accelerated pace of salary enhancement for managerial, professional and technical personnel.

Where does that leave Tanzania? n Pay reform is a slow process - need to target n Pay has improved but is still too low n How to finance local cost compensation? – HIPC? – MDRF? – Separate fund?