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“The budget for the year 2007/08 was prepared in
consideration of a possible wage adjustment,” said
Sufian Ahmed, minister of Finance and Economic
Development.
He announced on Saturday, September 1, 2007, that
the government has decided to increase the minimum
wage by 37pc - from 235 Br to 320 Br per month - and
pension by 60pc, from a minimum of 100 Br. Those
civil servants in the high end of the pay scale
would get an increase of 617 Br, from a monthly pay
of 2,535 Br. The increase is effective as of July 7,
2007, disclosed Sufian.
The Minister made the announcement two days after
the Council of Ministers passed a resolution on a
study conducted by a joint taskforce comprising
experts from the Civil Service Commission and
ministries of Finance and Economic Development, and
Capacity Building.
Launched about five months ago, the study to
increase wages to civil servants and pensioners was
led by Atekilt Hagos, commissioner of the Civil
Service Commission. The study was initiated as part
of a temporary policy response to the double-digit
inflation rocking the economy, which deeply affected
the fixed-income group of the urban population.
The Administration of Prime Minister Meles Zenawi,
which strongly believes the existing inflation is a
price to be paid for the impressive growth the
economy registered over the past four consecutive
years, was under immense pressure from opposition
parties in Parliament and the public to increase
salaries to the civil service.
It was very hesitant to respond to such demands,
arguing that the source of inflation has not been
fully understood and the solution comes from a
continued expansion in the economy.
A few months before Parliament went into recession,
the United Ethiopian Democratic Party (UEDP-Medhin)
was defeated in Parliament on its motion demanding
the government to increase wages, reduce utility
costs and expand subsidised provision of basic
commodity items to the urban population with no
sustainable income.
In what is considered a sudden move by analysts, the
government has decided to offset inflationary burden
on the urban poor at a cost of 1.8 billion Br in
wage increase, 90pc of which goes to civil servants
in the regional states. The adjustment it has made
on pensions will cost the federal government 400
million Br.
“There is no policy shift here,” said Sufian. “We
would have done it even if there was no inflationary
phenomenon in the economy.”
Lidetu Ayalew, chairman of UEDP-Medhin, however,
feels vindicated.
“They should not have looked at our motion a few
months back as a partisan agenda,” he told
Fortune. “Nevertheless, it is a very positive
move and fair for the government to respond to the
plights of the civil service. The government should
be appreciated for its decision to address the
public demand.”
Minister Sufian, who did not attend the morning
session of a meeting by the executive committee of
the EPRDF held in the Prime Minister’s Office,
believes it is appropriate for the government to
listen to the public.
“It is also proper to respond to public demand based
on studies,” he said at a press conference he gave
from his office located at King George Street.
“Government understands the inflationary pressure,
particularly on the urban poor.”
Analysts differ on the effectiveness of government’s
bid in fighting inflation by increasing wages and
adjusting pensions, although they see no impact on
the fiscal balance. They see it as a nominal wage
increase rather than a real wage improvement that
should come as a result of the continuous structural
transformation of the economy.
They view the current wage adjustment exacerbating
the existing inflation, due to businesses
speculating on prices as well as undermining the
latest trend that shows inflation suspended, or
going down as projected by the International
Monetary Fund (IMF). The latest consumer price index
(CPI) compiled by the Central Statistics Agency
reveals that annual average inflation has been
declining beginning in May 2007, from a peak of 24pc
registered the previous month, the highest since
2001. It surpassed the 23pc registered in June 2003,
where the country was hit by drought, putting one
fourth of its population under food aid. The July
2007 CPI shows, however, annual inflation is going
down to 16.7pc, getting close to the 15pc the IMF
projected will remain in the current fiscal year.
“Our target is however to bring it down further to
the single-digit level,” Sufian said on Saturday.
Analysts recommend the government to pursue its
reform agenda in transforming the structure of the
economy in areas of finance, telecom and expanding
its tax base from the current coverage of 13pc of
Gross Domestic Product (GDP) to at least the African
average of 29pc.
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