Any civil service pay hike has to be more than about two wolves voting to eat some sheep for dinner.
The first and foremost issue is if the state treasury can afford it. Going by the budget figures Bhutan would have to take major loans to pay for a civil service hike which is not permissible by the Constitution. The other option is to drastically cut back other developmental activities like farm roads, highways, schools etc which is not desirable.
In the 2014 pay hike even a 25% overall hike for around 26,000 civil servants combining the hike and the house rent allowance led to a Nu 1.8 bn (1,800 mn) financial impact. The government corporations as usual followed suit and spent around another Nu 500 mn for more than 6,000 employees. The total hit taken by the budget was Nu 2.2 bn every year.
The LG comparison
Compare this to the Nu 135 million impact for 1499 local government people. Until recently Gups elected for five years to look after an entire Gewog were getting wages comparable to an S 2 level civil servant with none of the equivalent increment, PF, gratuity, DSA benefits. Moreover the S 2 level civil servant would not have to contest elections every five years to retain his or her job based on public trust. Even with the hike Gups are just touching the P 4 category who is a junior officer in the civil service.
With 50% of all capital expenditure and major tasks being assigned to local governments in the 12th plan, it is of utmost importance to get good candidates to contest for the sake of the Gewog and country’s future. To put it in perspective, the annual LG pay hike impact is still far lesser than the annual subsidy given to BBS and it is also lesser then the interest subsidy given for Druk Air’s third aircraft.
The second issue is on ensuring that civil servants have a decent standard of living in comparison to the rest of their countrymen. It is true that in the private sector a handful of owners, top management and few highly skilled employees get higher pay than most government employees. However, this is either due to taking calculated risks with no safety net, sheer hard work or because they own the means of production and its associated risks and benefits.
However, the vast and overwhelming majority of people in Bhutan’s private sector are paid wages which are far below their counterparts in the civil service and government corporations. This gap has gotten worse in the last eight years with no significant progress for the private sector, as a whole, while civil servants and corporate employees have gotten three hikes in six years from 2008 to 2014. This is not to mention the annual increments.
The less said about the farming sector the better as they can produce from only the same plot of land as their family members increase. This is in the face of increasing human wildlife conflict, drying water sources and other challenges. This is best indicated in the huge rural-urban migration which continues unabated. Also, comparatively only a few farming families are lucky to have family members in the civil service.
Most important of all, civil servants have something which is not available in the private sector, which is the assurance of a permanent job with decent benefits, stability, promotions and pension for life. Even if a person is earning more in the private sector, he or she may not have that job tomorrow if they can’t keep up the same level of performance or if the company does not do well.
The economic impact of the two pay hikes of 2009 and 2011 has never been properly discussed or understood. The rupee crisis really took off from the end of 2011 onwards as the situation started getting bad from 2010 onwards.
It is not a matter of coincidence that there were two major pay hikes in the preceding years.
In a strange way both a government task force to study the cause of the rupee crisis and a separate BCCI study on the issue came up with different causes on the rupee crisis but in a way proved the same conclusion.
The government report blamed mainly private consumption which has to do with credit expansion and imports of more vehicles, luxury goods etc.
The BCCI report said the government expenditure was the main cause showing a startling statistical co-relation between increase in government expenditure and increase of credit which lead to more imports.
It would not take a genius to figure out that two rapid pay hikes, at a time when the economy was not very stable, lead to a sharp increase in consumption and credit. Pay hikes would have encouraged many civil servants and corporate employees to take part in the then housing boom by taking out bank loans and building on their vacant plots.
Apart from the above economic trends what came as a big blow to the private, non- civil service and non-corporate sector was a rapid increase in the house rents around this time. This hit the private sector hard which could not go for hikes.
A detailed story by this paper around 2012 interviewing many major private companies all drew the same answer that they could not afford pay hikes at all.
Another economic impact was through the drastic cuts recommended by the Pay Commissions in other fields of government expenditure which hit the private sector like stationery, advertisement etc.
An Un-Civil share of the budget pie
A bloated 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.
This rapid and consistent increase in the consumption of budget resources over a long term is neither sustainable nor healthy.
As pointed out by the World Bank itself, hydropower revenues can no longer be relied upon for self sufficiency.
This is not surprising when politicians under pressures are already promising future hikes for civil servants based on the revenue projections from future hydro projects. At this rate a person in the private sector could be forgiven for thinking that he or she has no stake in the country’s prosperity
It is also notable that from the 10th plan onwards the overall current expenditure is ballooning and becoming bigger than the capital expenditure.
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.
It is therefore clear that any government contemplating a civil service pay hike will have to look into a lot more factors than what pay commissions did in the past. It is also more important to remember that 26,000 civil servants and around 6,000 corporate employees consume a disproportionate part of the resources allocated for around 700,000 people.
“The bureaucracy is expanding to meet the needs of the expanding bureaucracy.”