Chairman of the Economic Programme Oversight Committee (EPOC) Keith Duncan is urging the Government of Jamaica (GOJ) to revisit setting a fiscal rule outlining how much should be spent on salaries and wages in relation to the country’s gross domestic product (GDP).

His call comes against the backdrop of a 3 per cent increase in the wage to GDP ratio over a two-year period.

He noted that since the Government began reviewing the compensation packages of public sector workers in 2022, the expense line has made the budget more “rigid” and presents the risk of reducing capital expenditure and, by extension, growth.

Notwithstanding, Duncan noted that the restructuring of compensation was a necessary step taken as civil servants “sacrificed for many years through wage freezes and there was a commitment from the Government of Jamaica to [effect] this public sector compensation restructure”.

For the fiscal year 2023, the Government budgeted payments to public sector employees of $414 billion, or 12.6 per cent of GDP. At the beginning of the compensation reform in FY2021/22, the budget for the line item was $222 billion, representing 9.6 per cent of GDP.

“What we may need to revisit at some point in time is, where do we set this? Do we need a new fiscal rule around wages and salaries [as a percentage of] GDP?” Duncan asked rhetorically.

He added that there needs to be a “budget template” that outlines how much public sector compensation should be in relation to overall expenditure and the GDP. 

“Maybe we need to revisit it and then say, okay, you’re projected for wages and salaries to be at 12 to 13 per cent in the fiscal policy paper and it can only go down from here going forward. We can [also] demand from the Government that they keep it flat,” he reiterated.

The Government of Jamaica, acting on the recommendation of the International Monetary Fund, set a ceiling for wages to GDP of 9 per cent back in 2013.

However, in 2022 when Minister of Finance and Planning Dr Nigel Clarke announced the commencement of the compensation reform exercise, he indicated that the cap on the wage to GDP ratio would be breached. Just last year the Government in its Fiscal Policy Paper for 2023/24 estimated that wages would reach around 11 per cent of GDP.

Demanding value for money

The EPOC Chair argued that given the increases in compensation of public sector employees, the Government needs to ensure value for money. In this regard, he proposed the introduction of a performance management framework, as promised by the minister of finance.

“I believe that there was a decision taken that we’re going to compensate our people well, or competitively, and then demand more of them through a performance managememt system and then increase productivity and continue to rationalise the public sector through the mergers of public sector companies to get efficiency,” Duncan noted.

“What the Government needs to demonstrate to us now is how we’re going to get that performance management system so that we can get increased productivity that will go to the top line of GDP in terms of growth,” he continued.”

This, he explained, means that public sector must deliver “value-added activity” to bolster economic growth and better services to taxpayers who are paying the salaries of public sector employees.