Answer to Question #198461 in Microeconomics for pretty

Question

Literature review on the public sector wage bill as an expenditure control - Experience of other nations with similar problems

-         Discuss how they dealt with the problem

-         Critically analyse if the approach can be done in SA

Answer 1

Solution:

The public sector wage bill refers to the wages and salaries, allowances, and other benefits awarded to all public sector employees as compensation for services rendered.

Expenditure control is a government restriction measure that ensures public resources are spent as intended, within authorized limits and following sound financial management principles.

The public sector wage bill has been skyrocketing in many countries becoming a major concern in budget allocation. Lack of adequate control over government expenditure remains a problem in many countries. An assessment of more than 85 low- and middle-income countries in Africa, Latin America, Caribbean, East, Central, and South Asia, Eastern Europe, and the Middle East shows that more than two-thirds of these countries have relatively weak systems of expenditure control. Their public sector wage bill is more than the recommended percentage of 35% of the government budget. As a result of weak expenditure controls, they are associated with higher levels of expenditure arrears and a lack of budget credibility.

To tackle these issues, these countries have adopted various measures which include the following:

·        An increased focus on ex-ante controls over expenditure commitments rather than ex-post controls only at the payment stage of the expenditure cycle.

·        A shift from controlling only cash expenditures towards controlling the accumulation of accrued liabilities as well.

·        Greater devolution of responsibility for routine expenditure controls towards ministries and agencies and a more risk-based approach to the exercise of centralized controls.

·        A stronger reliance on internal and external audits to ensure the integrity of financial control systems in ministries and agencies.

·        An emphasis on transparency and accountability to the legislature and the public for expenditure overruns.

·        Freeze salary increments and review recruitment practices.

·        Taking drastic measures to increase revenue collection.

The approaches and measures implemented by these countries can also be adopted by South Africa in order to manage and reduce the ever-increasing public sector wage bill. The country spends almost a third of its budget on public wages to its civil servants, including national and provincial officials, doctors, teachers, and police, which is expected to continue increasing, hence resulting in continuous budget deficits that are affecting the country’s GDP.

South Africa can, therefore, adopt measures such as salary increments freeze for a while, review current remuneration and recruitment practices, emphasize transparency and accountability to the legislature and the public for expenditure overruns, and a stronger reliance on internal and external audits to root out corruption and ensure integrity.

These measures if implemented appropriately by South Africa, the public sector wage bill and expenditure control can be managed efficiently and reduced to appropriate levels.