Cutting the fat out
Reforming public service employment policy and social expenditure may be the recipe for rationalising budget allocations and systematising efficiency
The gaping budget deficit has lately become the talk of the town. A good LE42 billion, 7.3 per cent of the total 2003/2004 budget, is not something that the government can easily shrug off. Meeting the difference between expenditures and revenues and rationalising the budget were tackled this week at a conference organised by the Egyptian Centre for Economic Studies (ECES). Niveen Wahish attended.
Entitled "Fiscal sustainability and public expenditures in Egypt", the conference singled out for reform civil service employment practices and expenditures on social services.
Civil service reform was proposed by Heba Handoussa of the Economic Research Forum (ERF), based on a paper prepared by herself and Nevine El-Oraby, a freelance consultant with ERF. According to Handoussa, long-term excessive public service employment has had dreadful effects on the equity, efficiency and sustainability of the government budget. Illustrating the hefty bill footed by the government, Handoussa said that between 1991/92 and 1999/2000 wages increased from 16.3 per cent to 23.3 per cent of total budget expenditure. While LE8 million of the budget was earmarked for wages in 1991/92, LE22 million was allocated for the same purpose in 1999/2000. She put these numbers in context by stating that 40 per cent of Egypt's aggregate employment is in the public service sector.
Not only has over-employment of civil servants strained the budget, it has also provoked serious social repercussions, Handoussa said. The government policy of guaranteeing public sector jobs to university and intermediate-level graduates has steered many youths away from learning a productive trade. Handoussa said that paltry salaries have also created a new generation of impoverished civil servants. With the real value of those salaries falling, many public sector employees have taken to moonlighting in part-time jobs and accepting bribes. Handoussa said that these phenomena combine to create a "generation of disappointed youth". Labour redundancy in government offices has also caused a decline in productivity and a significant overlapping of responsibilities, negatively affecting in turn the efficiency and quality of service provided by civil servants.
Handoussa suggested reducing the size of the 5.5 million-strong public sector workforce, decentralising government services, encouraging the private sector to take over public sector functions, enhancing productivity through training and tying rewards to performance. She encouraged the elimination of one million redundant positions and concurrent raises for productive employees. Another solution offered in the presentation was to provide incentives for young labour force entrants to seek productive employment in the private sector, by matching social security contributions of the employer and employee shares, particularly in small and medium-sized businesses.
ECES conference presenters implied that restructuring the civil service is in itself an insufficient remedy to the budget strain. Other areas, like social spending, need to be restructured as well. Ahmed Galal, executive director of the ECES, presented a paper on health, education and subsidies expenditures. He pointed out that though the government reduced public expenditure from 38 per cent of GDP in 1990/91 to 29.2 per cent in 1999/2000, it increased social spending from 6.9 per cent to 7.5 per cent. Social spending thus came to dominate a vastly greater proportion of public expenditures. Galal's pointed questions on this issue addressed the efficiency of social expenditures and their benefit to target groups.
He explained that the government's increased social spending has improved access to health and education, but not necessarily the quality of these services. An increased number of schools and hospitals and higher enrollment numbers are indicators that access to education and medical care has been augmented. At the same time, Galal said rates of grade-level repetition are high and the cost of private tutoring in public schools exceeds that of private schools. He also found that unemployment was highest among the educated, at 9.6 per cent compared to 1.8 per cent unemployment among the illiterate, suggesting that improved access to education has not necessarily been beneficial, particularly since it is not demand driven.
Galal believes that in general more can be delivered by rationalising the government's prodigious spending. As an example, Galal said the rich are reaping the benefits of subsidies, which are aimed exclusively at the poor.
He suggested that the key to successful reform is shifting the expenditure approach. Rather than simply allocating funds without stipulation, allocation should be tied to performance. By allocating resources according to the efficiency of the institutions receiving the funds, institutions and their employees will be motivated to improve service and production. These institutions must be monitored by an independent regulatory body and be held accountable for their performance.
