Sustainable Wage Bills Public S rvic s & COVID-19 – R fl ctions from th P cific Summ r Th COVID-19 p nd mic h s cr t d r sourcin crisis for m n P cific Isl nd countr public s rvic s, sinc th closur of int rn tion l bord rs h s stopp d or r duc d th flow of t l nt, tourists nd tr d in th r ion. This crisis h s d monstr t d th d p nd nc of public s ctor w bill sust in bilit on th conom , but lso th import nc of public s ctor w s to P cific Isl nd conomi s. W bill m n m nt is ss nti ll bout tr d -offs nd n ds to b b s d on d t nd vid nc , with d cision-m kin th t ccounts for short, m dium nd lon -t rm imp cts. D f ultin to blunt tools lik hirin fr s, w fr s, r dund nci s nd w cuts without consid rin m dium nd lon -t rm imp cts on public s ctor c p bilit nd public s rvic d liv r is in dvis bl . Sust in bl r sourcin is bout p opl s w ll s mon . Th p nd mic h s h d si nific nt imp ct on th offshor /onshor t l nt c cl in th P cific, wh r subst nti l numb rs of public s rv nts o out of th r ion for duc tion nd tr inin or to r pr s nt th P cific voic lob ll , nd int rn tion l c p bilit nd xp rtis is import d to support m jor proj cts nd sp ci list r quir m nts. Th p nd mic h s lso r - mph sis d th import nc nd v lu of clos d v lopm nt p rtn rships. Purpose of this note The purpose of this note is to identify good practice in Box 1. World Bank engagement in the public sector management drawn from Pacific Island Pacific on public services and COVID-19 public service experiences of navigating the COVID-19 Between April 2021 and March 2022, the pandemic. World Bank worked with Pacific Island These experiences were brought together through a country Public Service Commissions and World Bank engagement with Pacific Island countries in Ministries of Finance to share information on 2021 and 2022. The engagement identified five core how they were managing through the aspects of Pacific Island public service management in COVID-19 pandemic. The engagement response to COVID-19: trust, preparation, adaptable involved interviews and discussions with officials, as well as a series of regional system settings, adaptable operating models, and seminars. For further detail of the sustainable resourcing. This final note in the series of five engagement, see the back cover of this note. focuses on the importance of sustainable wage bills. The primary audience is public service leaders in the Pacific Islands. The note will also be of interest to anyone working on designing and leading public sector management systems through rapid change, uncertainty and crises. Table 1. Covid-19 cumulative reported caseload in Pacific Island countries (November 30, 2022) Country Population Total Covid-19 Cases Total Covid-19 Deaths Fiji 902,900 68,375 878 Kiribati 121,390 3,430 13 RMI 59,620 15,541 17 FSM 116,250 22,203 58 Nauru 10,870 4,621 1 Palau 18,170 5,684 7 Samoa 200,140 15,967 29 Solomon Is 704,000 24,575 153 Tonga 106,760 16,182 12 Tuvalu 11,925 2,257 0 Vanuatu 314,460 11,981 14 Source: WDI, JHU (https://coronavirus.jhu.edu/region/) and WHO (https://covid19.who.int/region/wpro/country/ki). A resourcing crisis The COVID-19 pandemic has created a resourcing crisis for many Pacific Island country public services, since the extended closure of international borders stopped or reduced the flow of talent, tourists and trade in the region. Public sector wage bills were put under increasing pressure at the same time as there was increased demand for public services and limits on access to international capability. Though borders have now reopened, key cross-border flows such as tourism are yet to recover fully in all tourism-dependent Pacific Island countries. Before the COVID-19 pandemic, analysis by the World Bank for a selection of Pacific Island countries suggested that wage bills were mostly being managed in a fiscally sustainably way. The pandemic led to both reductions in public revenue and the need to increase public services in key areas like health and border security, which required increased wage bill spending in those areas. These changes in the fiscal equation led to increased attention on the size of public sector wage bills. It was extremely challenging for Pacific Island countries to determine what was ‘affordable’ in the pandemic context. The level of wage bill spending that is affordable depends on the level of public revenue and other spending over the medium term. Fiscal forecasts – especially for revenue and particularly in tourism dependent economies – were very difficult during the pandemic, given the 1 unprecedented degree of uncertainty about the length and depth of the COVID-19 crisis, and what level economic activity would return to on the other side of it. Given that there remains some uncertainty about what the new normal will look like – particularly in terms of air connectivity and tourism in the region – the challenges of determining what is ‘affordable’ remain for several Pacific Island countries. Box 2. Wage bill pressures in the Pacific during the COVID-19 pandemic Problem: During the pandemic, public sector wage bills in many Pacific Islands increased substantially as a share of public revenue (excluding grants), raising sustainability concerns. Action: Given fiscal constraints, a number of Pacific Island countries introduced one-off actions like wage freezes or hiring freezes. These measures may have been thought necessary to manage cash flow and to mitigate the expansion of fiscal deficits. However, in most Pacific Island countries, the main factor contributing to the increase in the wage bill as a share of revenue was the decline in revenue triggered by the pandemic. For example, in Fiji the wage bill rose from 41 percent to 57 percent of revenue between 2019/20 and 2020/21, but this was because revenue (excluding grants) fell by 32 percent. The wage bill itself actually fell. Thus, the affordability problem was triggered by changes in public revenue, not by changes in the wage bill. Another factor contributing to increases in the wage bill as a share of revenue was increases in the wage bill in sectors that had to expand to respond to the pandemic (for example, increased staffing and increased allowances in the health and security sectors). Thus, pressures to contain the wage bill (for fiscal reasons) came at the same time as pressures to expand government service delivery in order to respond effectively to the COVID-19 pandemic. Figure 1. Public service wage bill as a share of GNI 30  The increases in the 20 wage bill as a share of GNI evident in 10 several countries reflect falling GNI, 0 more than rising Fiji Kiribati RMI FSM Nauru Palau Samoa Solomon Is Vanuatu wage bills. 2019 2020 Figure 2. Public service wage bill as a share of expenses 50 40  The wage bill share 30 of expenses did not 20 show a common trend across Pacific 10 Island countries. 0 Fiji Kiribati RMI FSM Nauru Palau Samoa Solomon Is Vanuatu 2019 2020 Figure 3. Public service wage bill as a share of domestic revenue 80  The increases in the 60 wage bill as a share of domestic revenue 40 primarily reflect falling domestic 20 revenue rather than 0 rising wage bills. Fiji Kiribati RMI FSM Nauru Palau Samoa Solomon Is Vanuatu 2019 2020 Note: To ensure the charts use comparable data, all data are sourced from WDI. WDI does not yet contain data for 2021, so these charts only show the early impact of the pandemic on these fiscal aggregates. The extent to which the 2020 figures reflect the impact of the pandemic varies by country, depending on the fiscal year of each country (e.g. where the fiscal year is the calendar year, 2020 includes nine pandemic-affected months, whereas for July-June fiscal years, 2020 includes only three pandemic-affected months). Source: WDI. 2 The closure of international borders also reduced access to domestic talent trapped offshore and to international capability that would normally have been imported. Most Pacific Island countries swiftly closed their borders to prevent the spread of COVID-19 to their shores and in their communities. This resulted in public servants who were offshore on postings, for education and training or even for personal travel being stuck outside their country for extended time periods. This created gaps, including in leadership and technical specialist roles that were not easy to fill. This was further compounded by the inability to recruit internationally or fly in technical assistance from offshore. The unexpectedly long duration of the border closures during the pandemic indicates that these are risks that Pacific Island countries will now have to build into their planning for the future. The importance of the public sector wage bill It is no surprise that wage bill sustainability is closely tied to the fiscal balance sheet of a country. The pandemic has had a significant impact on government revenue, particularly in tourism-dependent economies, and this has in turn placed pressure on the public service wage bill. However, the COVID- 19 crisis also highlighted the degree to which Pacific Island economies are dependent on the public service wage bill. As Pacific Island governments were faced with choices about whether to maintain the level of public service wages, wherever possible they chose to protect public servant incomes because of their significance for the local economy and their direct contribution to the wellbeing of many families and communities. The public service wage bill cannot be treated just as another cost item in the budget. It affects the lives and livelihoods of public servants and their extended families. It also impacts on the wellbeing of all citizens. The functions public servants undertake and the services they provide – most obviously education, health, police and market regulation – affect human capital development, public order and security, and the economic opportunities of everyone. Wage bill management is not just about the costs of public servants but about what those public servants are doing and delivering for citizens. In response to fiscal challenges, it is still common for countries to use one-off actions like hiring freezes, wage freezes, redundancies and wage cuts to reduce wage bill spending. However, the global evidence does not support the effectiveness of these measures in the medium-term. Their impact is typically more than offset over time, as people find ways around measures that do not address the root causes of the problem. Countries that address the causes of excess wage bill spending through continuous improvement tend to be more successful in making wage bills sustainable. For example, regularly reviewing the alignment of staff against the evolving functional priorities of the public service can reduce waste and improve productivity. Achieving wage equity within the public service can also yield savings and improve staff motivation. Measures like partial hiring freezes and wage freezes can help contain wage bill spending in the short term, if wage bill controls are already very strong (e.g. on contract hiring, overtime and allowances). But as countries move beyond the short-term crisis to the recovery and resilience phase, more sustainable and targeted measures are required. What are the mechanisms that can help address challenges to effective wage bill management? The World Bank’s new Public Sector Employment and Compensation Assessment Framework identifies six areas of potential intervention (see Box 3). What areas need to be tackled, and what mechanisms would be most appropriate to address them, depend on the sources of wage bill challenges in a particular country and the priority each country places on competing objectives. 3 Box 3. The World Bank’s Public Sector Employment and Compensation Assessment Framework Developing a robust evidence base is vital to making good decisions. Without good evidence, it is difficult to clarify the trade-offs between competing policy objectives and understand the implications of policy choices. The Public Sector Employment and Compensation Assessment Framework establishes a consistent methodology for assessing the strengths and weaknesses of pay and remuneration practices. It provides general guidance on pay and employment issues that can be adapted to country contexts and used to develop evidence-based policy advice. Using data that most governments collect as part of their operations, the framework identifies core indicators that can be tracked over time and serve as the evidence base for the assessment. This will help governments evaluate the impact of pay and employment practices on three important outcomes: fiscal sustainability, public sector productivity, and the competitiveness of the overall labour market. The framework assesses public sector employment and compensation practices across six dimensions: • Wage Bill Planning: covers the robustness of the wage bill planning process such that annual planning and budgeting is anchored in a fiscal sustainability framework, is informed by comprehensive and accurate data, and is transparent. • Wage Bill Controls: examines the strength of wage bill controls to ensure that the budget is executed as planned and that only legally employed staff on the payroll are paid the wages that are due to them. • Employment Levels and Distribution: analyses whether the public sector is appropriately staffed. • Wage Competitiveness: assesses the wage competitiveness of the public sector to ensure that qualified staff are attracted to public sector employment without creating skills shortages in the private sector. • Wage Equity: explores wage equity so that staff in similar jobs with similar skills and similar performance are paid equivalently. • Wage Incentives: explores wage incentives in the form of appropriate performance-based career growth and performance bonuses aimed at maximizing worker productivity. Trade-offs There is no single answer to the question of the appropriate size, structure or pay level of the public service. What is appropriate depends on trade-offs among competing policy objectives, with government decisions on those determining the extent of the functions and services the public service is to provide. This calls for integrated decision-making over the public service wage bill, to take account not only of fiscal imperatives but also government priorities for functions and services, and public service management experience of the most cost-effective modes of delivery. A macro perspective has to be combined with a micro-understanding of what people in the public service are doing and how this contributes to supporting the lives and livelihoods of citizens through government functions and public service delivery. Wage bill management is fundamentally about trade-offs. This is true of the wage bill as a whole, as well as within the wage bill. There is an obvious trade-off between the benefits of what having more public servants can deliver and the benefits of having more non-wage spending, lower taxes, or lower deficits. There is also a trade-off between retaining staff in areas where public servants are inefficient or the functions they are undertaking are low priority, and increasing staffing in areas where staff are over-stretched or services are high priority and need to be scaled-up. The trade-off of retaining a public service pay structure that contains numerous inequities – where some positions are paid relatively more than the ‘size’ of the job warrants while others are paid less – may be the inability to fill positions where the jobs are very demanding or the skills and qualifications required are in short supply, and the lower motivation such inequity fuels throughout the public service workforce. 4 Better data Making effective decisions on difficult trade-offs is dependent on access to quality information. Up- to-date work force data and a clear understanding of functional activities and priorities is needed to have confidence in the balance being struck between competing factors. The reality is that for many Pacific Island countries work force data is relatively scarce. Even up-to- date data on staff numbers across agencies and in functional divisions within them may not be readily available to central agencies. There may be no pay comparator surveys, no or infrequent labour force surveys, and limited or no functional reviews of agencies. However, countries usually have other sources of data they could tap into, to inform decisions – even if it is not currently being recorded and made available for management decision making. Analysing the number of qualified applicants for positions, the shortlist position of applicants who accept jobs, turnover rates and vacancy lengths for positions at each grade and in different occupational streams can offer vital insights into the competitiveness of public service jobs and the internal equity of pay scales. New technology also allows novel types of data to be collected relatively cheaply. One example of this is the ability to collect perceptions data from mobile phone-based staff surveys. Breaking the onshore/offshore cycle The unprecedented extended closure of international borders during the COVID-19 pandemic blocked and challenged the onshore/offshore cycle which has been integral to the operating models of many Pacific Island country public service agencies. For an extended period, COVID-19 froze overseas education, training and exchange, triggering a reassessment of some of the trade-offs involved in educating, training and posting public servants offshore. Alongside a general shift towards online training delivery, the pandemic has placed a new risk profile on overseas training with some international students trapped overseas and unable to return home for long periods of time. There was a pause in the flow of Pacific Island public service leaders and officials to overseas conferences and gatherings to ensure the Pacific voice was heard on the international stage. While reduced travel came at a cost to visibility it also created a period in which leadership had more time to work on policy and actions with their onshore teams. The pandemic obviously also constrained the inflow of international capability into Pacific Island countries. Recruitment of international staff to take up onshore roles was not possible, which presented a particular risk in some specialist areas where skills are in short supply. Development Box 4. Human resource gains and losses from border closures Problem: As Pacific Island countries closed their borders in the early stages of the pandemic, the normal flow of technical assistance through missions, short-term assignments and even longer-term advisory positions was interrupted. This caused significant skills gaps to emerge. Action: The ability of Pacific Island countries to address this challenge depended on the skills gaps they faced, the capabilities of national public servants, and the training and other upskilling opportunities available to them. Where there was a good foundation of capability in national public servants, remote engagement with technical specialists abroad enabled skills gaps to be filled – with national public servants playing greater roles and taking more responsibility in these learning processes than they had previously done. This was not possible in all circumstances, however, for example where technical specialists needed to be physically present to undertake work. This was the case for health services in Tuvalu, where service provision was constrained by the ability of medical workers recruited from overseas to travel to Tuvalu to take up their assignments. It was also the case for major construction projects in Kiribati, which were significantly affected by border closures. 5 partners were limited in their ability to provide onshore technical assistance with an inevitably greater focus on virtual support. For some countries this meant significant delays in projects and infrastructure work. However, the absence of international experts also provided a greater impetus and opened up opportunities for local staff to take on experiences and build skills that previously had to be imported. Development partnerships matter The COVID pandemic has also re-emphasised the importance of close development partnerships. Where countries had established strong linkages and clear lines of communication with development partners, these were of great assistance in the timely alignment of international support during the crisis. This was the case for technical support (for example, utilization of World Health Organization (WHO) guidance on infection prevention and control, or utilization of Public Service Fale support on public service instructions for flexible work arrangements). It was also the case for financial and logistical support (vaccine supplies, for instance). Where countries had established strong credibility with development partners, they were better positioned to receive flexible and timely financial support, based on trust that this support would be well utilized. Well-established relationships are of particular value in enabling partners to continue working together closely via virtual channels based on previously built-up trust and working patterns. This was especially important in this global crisis, where development partners were struggling with their own circumstances and responses. Interdependency There is a strong degree of interdependency between the five aspects identified across the seminars and interviews. Sustainable wage bills are an enabler of the other four aspects since access to human resources and funding underpin effective preparation, adaptable system settings and adaptable operating models. Sustainable wage bills are also important for sustaining trust. The pandemic has highlighted the vital importance of maintaining public service wages and thereby public service delivery, to support economic stability and community wellbeing in Pacific Island countries. Key Insights From blunt instruments to evidence-based policy. Wage freezes and hiring freezes are at best short-term measures to limit wage bill growth while government identifies its underlying drivers and – if unaffordable – makes decisions about where productivity gains can be achieved and/or which functional or service delivery areas will be reduced. Such decisions require data and information about what different parts of the public service deliver and what they cost. Wage bill management as subordinate to service delivery decision making. Instead of decisions about the size of the wage bill determining the number and pay of public servants, and what they are available to do, decisions about what the priority functions and services are within a given overall fiscal constraint should determine the size of the wage bill – as the cost of the labour input required for those prioritized functions and services. 6 What is the World Bank’s engagement in the Pacific on public services and COVID-19? This s ri s of not s h s b n d v lop d throu h World B nk n m nt, workin with P cific Isl nd countr Public S rvic Commissions nd Ministri s of Fin nc to sh r inform tion on how th w r m n in throu h th COVID-19 p nd mic. Th n m nt r n from April 2021 to M rch 2022, involv d int rvi ws nd discussions with offici ls from s v n P cific Isl nd countri s, nd culmin t d in four s min rs in F bru r nd M rch 2022 with p rticip nts from l v n P cific Isl nd countri s. Th summ r not s from th s s min rs r v il bl from th World B nk nd r lso v il bl throu h th Public S rvic F l F l Onlin und r th COVID-19 s ction. Th n m nt w s round d in th uniqu n ss nd div rsit of th P cific Isl nd xp ri nc of th COVID-19 p nd mic. Th P cific xp ri nc h s b n quit diff r nt to most countri s. In April 2021 – t th st rt of this n m nt – lob ll th r w r fiv million n w c s s of COVID-19 w k nd lr d 3 million d ths h d occurr d sinc D c mb r 2019. In P cific Isl nd countri s th r h d b n l ss th n 250 tot l c s s nd m n P cific Isl nd countri s h d xp ri nc d no communit tr nsmission. This xc ption lism rod d cross th cours of th n m nt nd b th nd of M rch 2022 P cific Isl nd countri s h d xp ri nc d mor som 145,000 COVID-19 c s s nd communit tr nsmission w s occurrin in most. D spit r l tiv succ ss t holdin COVID-19 t b for lon tim , th p nd mic h s h d dr m tic soci l nd conomic imp cts. All P cific Isl nd countri s impl m nt d bord r r strictions from rl 2020. Th s undoubt dl s v d liv s. Th r strictions h v , how v r, c us d d m to liv lihoods nd conomic ctivit t hom , str nd d citi ns bro d nd r duc d public r v nu , with th tourism-d p nd nt countri s h rd st hit. For x mpl , GDP in P l u contr ct d b n stim t d 17 p rc nt in 2020/21 nd public r v nu ( xcludin r nts) in Fiji f ll b bout 32 p rc nt in 2020/21. Microsimul tions of pov rt tr nds su st th t COVID-19’s conomic imp cts push d pov rt up 5.2 p rc nt points in V nu tu. At th s m tim , COVID-19 h s pl c d n w d m nds on ov rnm nts, forcin public s rvic s cross P cific Isl nd countri s to r pidl d pt. This h s r quir d th r lloc tion of hum n r sourc s nd sp ndin to t ckl n w nd ur nt t sks, whil lso n vi tin lockdowns or pr p rin for th risk of communit tr nsmission. For P cific Isl nd countr public s rvic s th r h v b n common ch ll n s nd contr stin xp ri nc s. P cific Isl nd countri s r f mili r with n vi tin throu h cris s, du to th r ion’s p rticul r vuln r bilit to n tur l dis st rs nd clim t ch n imp cts. Th COVID-19 p nd mic h s x c rb t d this vuln r bilit , but lso hi hli ht d th p rticul r r sili nc of P cific Isl nd countri s in k pin COVID out for lon r th n most of th r st of th world, whil providin th opportunit to P cific Isl nd countri s to pr p r for its in vit bl rriv l. Th World B nk n m nt id ntifi d fiv cor sp cts of P cific Isl nd public s rvic m n m nt in r spons to COVID-19: trust, pr p r tion, d pt bl s st m s ttin s, d pt bl op r tin mod ls, nd sust in bl wage bills. Th purpos of this s ri s of not s on th s sp cts is to id ntif ood pr ctic in public s ctor m n m nt dr wn from P cific Isl nd public s rvic xp ri nc s of n vi tin th COVID-19 p nd mic. Th prim r udi nc is public s rvic l d rs in th P cific Isl nds. Th not s will lso b of int r st to n on workin on d si nin nd l din public s ctor m n m nt s st ms throu h r pid ch n , unc rt int nd cris s.