No civil service pay hike before 2018 polls but new govt should consider it: PM

Dismissing speculation of a strategic civil service pay hike before the 2018 polls, the Prime Minister Lyonchhen Dasho Tshering Tobgay said these are just rumors and have no truth to them.

“A civil service pay hike before the 2018 polls would be one driven purely by political interests and not our national and economic interests,” said Lyonchhen. The PM said that such a political move would be irresponsible and hurt the economy.

However, Lyonchhen said that with the 720 MW Mangdechu project coming online by 2018 June, the next government should review the civil service pay keeping in mind the national interest as opposed to one driven purely by political interest.

The PM said, “I am confident that whichever government comes in 2018 they will give due consideration to the issue of a civil service pay review for immediate attention. We certainly will.”

The Finance Minister Lyonpo Namgay Dorji said that the government did not have any additional resources allocated to give a pay hike for civil servants. He also said that the prerogative should be left to the next elected government.

The finance minister said that even if the government had the finances it would have to consider so many factors before even considering any hike. The minister said a pay hike now would lead to increase in aggregate demand which would increase consumption and the trade deficit which in turn would affect the balance of payments. The minister said that at the moment there is no need felt to go for a pay hike.

The minister also said that on the revenue front, the delay of the hydro projects like P I, PII and Mangdechu projects due to geological surprises meant that the additional resources are not there.

The minister said that even though the Mangdechu project would be completed by June 2018 during the government’s term, its revenue would only come in a year later in 2019. The minister said that the additional loan interest due to the five-month delay incurred on the project would also have to be paid in batches once Mangdechu starts.

Lyonpo said due to the GST doing away with the excise duty refund the government would already lose Nu 14 bn in revenue during the 12th five-year plan.

Apart from this, since India was doing away with excise duty collection and refund on fuel imports into Bhutan coming to around Nu 1.6 bn a year, the government, instead of raising taxes to make up for the shortfall, decided to pass the full benefits to Bhutanese consumers by slashing the price of petrol and diesel.

The government had said that this was the biggest fiscal incentive to the Bhutanese economy so that transportation prices and prices of other things would come down and benefit ordinary Bhutanese.

The Finance Minister said that moves like passing on the benefits on fuel prices, reduction of Personal Income Tax, lower loan interest rates and now preferable loan interest rate for youth and farmers benefitted everyone.

The minister said that around Nu 2 bn is kept in the reserve fund for a lot of unforeseen expenses like emergencies, natural disasters etc, but it is illegal and not right to use such funds for pay hikes.

The minister said that if there was to be any pay hike it would have been allocated in the 2017/18 annual budget presented in the Parliament earlier in 2017. He said that a pay commission would be needed before that to come up with detailed recommendations which is also not happening.

The minister said that any last minute hike would have to go into the 2018/19 budget.

The Opposition has made its position clear that the 2018/19 current budget does not even required to be passed in the assembly but there are legal provisions to use the same current budget as the previous year with a minor percentage increase.

The PM said irrespective of the above factors the government does have the authority to give an additional hike, and it could follow a past precedent when a hike was given without even available resources, but he said that it would not be in the nation’s interest.

Pay hike background

There have been three civil service pay hikes between 2009 and 2017 a period of eight years with one each in 2009, 2011 and 2014.

The last civil service pay hike in 2014 saw a 25% average overall hike for around 26,000 civil servants combining the hike and the house rent allowance that led to a Nu 1.8 bn (1,800 mn) financial impact. The government corporations followed suit and spent around another Nu 500 mn for more than 6,000 employees. The total impact on the budget was Nu 2.2 bn every year since then.

Earlier this year a Pay Commission recommendation led to a Nu 135 million hike and benefits like provident fund, gratuity etc. impact for 1499 local government Gups, Mangmis and Tshogpas.

Ever since the 2009 pay hike itself the majority of the private sector including major companies have not been able to keep up with the government wage increases leading to an increasing wage gap.

A large civil service is already consuming a huge portion of the annual budget and the largest chunk of the current expenditure.

Of the Nu 28.5 bn current expenditure in the 2017-18 annual budget the pay, allowances, stipends, emoluments, provident fund and retirement benefits come to around Nu 11.5 bn. Apart from this in country travel comes to Nu 1.718 bn and out country travel comes to Nu 252 mn.

While in the 11th plan the capital expenditure is Nu 109 bn and current is Nu 105 bn, in the 12th plan it is proposed to be Nu 115 bn for capital expenditure and Nu 185 bn for current expenditure. The current expenditure will keep ballooning partly on account of more maintenance but also in a large part due to increasing salary and pay burdens on the state.

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