IMF Highlights Ways to Better Manage Government Pay

Governments should focus on delivering quality public services by effectively managing their wage bill, through adequate fiscal planning, competitive compensation, and employment flexibility, an International Monetary Fund (IMF) staff paper has stated.

The paper, “Managing Government Compensation and Employment,” which builds on new data sets and 20 country case studies, showed that governments can accommodate changing demands and deliver high-quality public services by better managing their wage bill.

Speaking to IMF Survey, Deputy Division Chief, Mercedes Garcia-Escribano, and the Senior Economist,Teresa Rose Curristine, discussed ways in which governments can improve their management of pay and employment.

Garcia-Escribano, in his contribution noted that government pay and employment policies are important for the delivery of quality public services, which are crucial for the functioning of economies and prosperity of societies. “Since the wage bill is a major item in government spending (on average it represents about a quarter of the budget), its management is a priority in all countries. The challenge is even more pressing when aging populations demand rising health and pension spending. This is the case in many advanced economies. Many emerging markets and low-income developing economies face demands for expanding access to key services, such as education and health care, to support inclusive economic growth and poverty alleviation,” Garcia-Escribano explained.

Furthermore, GarciaEscribano noted that effective wage bill management is not an easy task, adding that reining in wage bill spending is even more difficult before elections and during times of economic upswing.

“In many countries, government pay appears to be higher than in the private sector, though this may not be the case for specialized or highly trained staff. Evidence also reveals that adjusting employment levels and composition—for example, in response to changing demographics—is difficult.

“Our work suggests that countries would benefit from improving medium-term wage planning, better integrating setting wages with the budget process, and more systematic wage negotiations (on an annual or multi-annual basis), as opposed to ad hoc negotiations. Regular comparisons between public and private sector pay can also enhance the ability to attract and retain staff with needed skills,” he added.

But Curristine stated that to accommodate changing demands and deliver highquality public services, countries need appropriate institutions to better manage their wage bill.