APRM • SECOND COUNTRY REVIEW REPORT OF THE REPUBLIC OF KENYA 4.5.2.2 Challenges Huge Wage Bill 349. The wage bill of the government is very high in Kenya. On this issue, reference is made to the International Monetary Fund’s study in 2014. Figure 16 is instructive, clearly revealing that in fiscal years, 2012/2013-2013/2014, the wage bill as a proportion of the GDP was as high as 7%. When related to the total domestic revenue generated, the wage bill was remarkably higher, in the range of 35-40%. This is undoubtedly very high for a country desirous of promoting economic growth. However, two major negative effects of the phenomenon of high wage bill are discernible. Firstly, less amount of financial resources is allocated to development expenditure generally considered as an important motor of economic growth. Secondly, it has severe repercussions on the social services sector that provides merit goods and services - education, health, water, and infrastructure - as the government is unable to render these social goods and services to the fullest degree possible because of reduced budgetary allocation. The story here is that the wage bill is crowding-out budgetary allocations to key sectors that can drive long term growth and at the same time shrinks the resources available to effectively address the big issue of absolute poverty through the provision social goods and services. Figure 16: General Government Wage Bill (in percentage of GDP) 8.0 6.0 Central Government 4.0 2.0 Subnational Governments 0.0 2012/13 2013/14 Figure 17: General Government Wages and Domestically Financed Development (in percentage of GDP) 50.0 40.0 30.0 General Governemnt Wages 20.0 Domestically Financed Development 10.0 0.0 Source: IMF (2014), Country Report No. 14/302 | 162 |