Report No. 42515-ZR Democratic Republic of Congo Rebuilding the Public Service Wage System Synthesis Note January 2008 Public Sector Reform and Capacity Building Unit (AFTPR) Africa Region Document of the World Bank This document has restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization CONTENTS Acknowledgements............................................................................................................. 1 General Issues ..................................................................................................................... Context................................................................................................................................ 2 2 1.The impact o fdecentralization........................................................................................ . . 3 2.Re-establishinga 2.1 Identifyingthe main issues ....................................................................................... wage system ....................................................................................... 4 2.2 A comprehensive agenda for introducingthe proposedreform principles...............46 2.3 Fiscal impact ........................................................................................................... 11 2.4 Initial reform measures introduced as part o f the August andNovember, 2007 agreements ........................................................................................................... 13 3.Rationalization.............................................................................................................. 2.5 Evaluating the reform orientation........................................................................... 18 19 3.1 At the central level.................................................................................................. 19 3.2 At the local level..................................................................................................... .......................... 19 20 4. Legal Framework .......................................................................................................... 3.3 Specific problems inthe various sectors, for example, education 20 21 Conclusions ....................................................................................................................... 5. Reformmanagement..................................................................................................... 22 Overview........................................................................................................................... 23 Listoftables Table 1: General Civil Service (2006) with universalbonuses. without specific bonuses 5 . Table 2: Scenario 1: Changes inwages for Huissier. Senior Office Clerk 1andDirector in Kinshasa............................................................................................................... 8 Table 3: Scenario 2: Changes inwages for Office Messenger, Senior Office Clerk 1and Director inKinshasa ............................................................................................ 9 Table 4: Changes inwages for Office Messenger, Senior Office Clerk 1andDirector: Provinces.............................................................................................................. 9 Table 5: Wage changes ..................................................................................................... 10 Table 6: Wage Bill/ GDP Impact...................................................................................... 11 Table 7: Wage Bill/ Total Public Expenditure Impact...................................................... 12 Table 8: Changes inthe wage scale for primary, secondary andprofessional education teachers inKmshasa., . . ......................................................................................... 14 Table 9: Changes inthe wage scale for primary, secondary andprofessional education Table 10: Changes inthe Public Administration Payroll.................................................. teachers inthe Provinces.................................................................................... 15 16 Table 11:Impact of payroll on GDP- education system reforms ..................................... 16 Table 12: Impact o fpayrollon total expenditure.............................................................. 17 Table 14: Impact o fpayroll on total expenditure.............................................................. Table 13: Impact o fpayroll on GDP................................................................................. 17 18 Table 15: Distribution o fregularized and non-regularizedpersonnel inthe education sector ............................................................................................................... 20 Acknowledgements This note is based on analytical work undertakenbetween January and October 2007. It forms part o f the ongoing, multi-year studies on governance inthe DRC, coordinated by Tony Verheijen. The program o f analytical work o f governance is joint initiative o f the World Bank andthe EuropeanCommission. The team that prepared the report wishes to thank the DRC authorities for the constructive discussions undertaken during the various missions undertaken to prepare the note. Tony Verheijen and Jean Mabi Mulumba are the main authors o f this report, based on a background note prepared by Tullio Morganti. The study benefited from the insightfbl and constructive comments o f the peer reviewers, Deborah Wetzel, Stepan Titov and Ranjana Mukherjee. This report was prepared under the general guidance and advice o f Helga W. Muller, Anand Rajaram, Pedro Alba, Judy O'Connor and Jean-Michel Happi. The report also benefited from valuable suggestions and inputs received at different stages o f preparation from Helena Ramos, Keiko Kubota, Emilie Mushobekwa, Dieudonne Randriamanampisoa, Monthe BienvenuBiyoudi, Abdou Salem Drabo, Laurent Messiaen, Alessandro Palmero, Teresa Polora and Thierry Vircoulon. Processing and editing assistance from Mavo Ranaivoarivelo and Marie Lo10 Sow i s gratefully acknowledged. Helpfullogistical assistancewas also receivedfrom Yvette KandiShungu. An earlier version o f this report was discussed during the National Decentralization Forum, held in Kinshasa from 3-5 October 2007 and benefited from valuable comments andsuggestions fromparticipants. 1 Context This note focuses on some o fthe key problems confronting the civil and public service in the Democratic Republic o f Congo (DRC), in particular the reform o f the wage system andthe impact o fthe decentralizationprocess on civil service reform. It was producedby the World Bank in collaboration with the Ministries o f Public Service and Budget, as well as with experts o f the Cooperation Technique Belge (CTB). The paper i s based on an in-depth analysis o f the Congolese public service system, published ina separate note, as well as on a series o f analytical papers on the decentralization process in DRC, which are available separately. It also incorporates feed-back and comments received during a presentation at the National Forum on Decentralization that was held in Kinshasa, October 3-5, 2007. General Issues The main issues affecting the public service are widely recognized and can be summarized as follows: a. The public service officially functions on the basis o f a unified legal framework. Inreality, however, it hasbecome fragmentedandnow hasmore than 27 different special legal status categories and numerous enforcement decrees. b. The number of civil servants is still not exactly known, even though the interim results o f the census are available. The census was started nearly three years ago, but continuously changing estimates o f staff numbers continue to impedethe start o f an effective public service reform process. c. The public service lacks a functioning human resource management system. Recruitment is carried out in a haphazard way (without considering the availability o f budget resources) and the Public Service Ministry has effectively been marginalized and has been unable to enforce across the board standards. Career management no longer exists and, in the current context of decentralization, the lack o f well-established recruitment procedures also poses a problem since there i s no clear frame o f reference for managing recruitment inthe provinces. Inorderto solve these issues, the Government should: a. Reform the legal status o f the civil service based on the principle o f separating the public service into autonomous professional groups with their own statute, possibly complemented by a set of over-arching principles defined in a framework law. From the World Bank's perspective, this i s the only practicable way to guarantee the success o fpublic service reforms; b. Reinstate a management system that must include clear links between human resource management activities and wage system management activities. From our perspective, this can only be achieved by separating the civil service into four or five autonomous professional groups (`general' civil service, teachers, medical personnel, security employees, etc.); 2 c. Complete the census o f employees in order to start the process o f rationalizing the number o f public servants, especially in the context o f the impending transfer o f significant numberso f staff from central to provincial and local level. This analytical paper offers several options aimed at solving the problems that have been identified and discusses in detail the three issues relating to the current reform agenda that are now key to resolving the fundamental issues below: 1. The impact of the decentralization process on the organization and management o f the civil service. 2. The reform o f the wage system and, linked to that, the rationalization o f the number o fcivil servants. The Government has acknowledgedthat these issues are key to public service reform, but has not yet set out a strategic orientation for resolving them. However, the government has established an expert group to define a wage system reform strategy. 1.The impactof decentralization The 2006 constitution distinguishes a national, provincial and local civil and public service, as well as the detailed division o f competencies, with the idea o f transferring major functions to provincial and local levels. Provincial governors and assemblies have been elected, resulting in increased demand for transferring financial and human resources associated with the transfer of functions. This will have a major impact on the development o f the public service system. Urgent actions to be implemented include: 1. The development o f organizational models for provincial administration. This is vital for defining the number o f available positions. The provinces, and eventually the entitis territoriales dicentraliskes - ETD (decentralized territorial entities), will almost certainly require more personnel in some sectors (budget management), but in other areas the number o f positions could be reduced. Moreover, the personnel currently in these positions do not necessarily have the skills to carry out the new functions. 2. The development o f a process to transfer personnel from the central civil service to the provincial civil service and eventually to the local level, and the introduction o f temporary measures to avoid a legal vacuum given that the legal framework to govern the provincial and local civil and public service has not yet been established. It is therefore important to follow international practice to find interim solutions (particularly the Philippines, Indonesia, etc.). Inview ofpoint 1above, aprocess to evaluate the capacity ofcurrent officials should also be introduced to ensure that the transfers are successful. This process will make it possible to determine ifthe current personnel has the necessary skills to handle the new functions (or if they should, keep them on a temporary basis and their positions 3 confirmed after they have completed a training process). It might be necessary to introduce a system o f competitive recruitment for these posts. 3. The introduction o f a provincial human resource management system. The current public service management units at provincial level are de-concentrated departments o f the Central Public Service Ministryand are not well equipped to take on the new role o f managing human resources in the provinces that are now much more autonomous. 4. The introduction o f mechanisms that will allow the provinces to have the necessary financial resources to take over the payroll for the education and health sectors. An estimated one-third o f total teaching staff have not been regularized and therefore do not receive regular wage payments, which leads to students' parents paying their wages. The same i s true for the health sector where almost halfo f the personneli s not paid by the state budget, staff are in this case mostly paid by donors. This i s a problem that will be transferred to the provinces. It is worth noting that most o f the provinces will be in a fragile fiscal situation between 2008 and 2009. Within the framework o f the 2008 Central Government Draft Budget, budget transfers to the provinces will be made on the basis o f the expenditure assignments to be transferred, in particular those related to civil servant wages. This would avoid the buildup of salary arrears inthe provinces. A. 3 Re-establishinga wage system 2.1 Identifiing the main issues The wage system inDRC no longer functions. Following the economic crisis and armed conflicts during 1990s, the level o f salaries at the beginning o f 2000 was more or less nominal. In order to deal with the social turmoil that existed in the public sector, and, at the same time take into account the country's fragile fiscal situation, the Government increased wages between 2003 and 2006 by introducing a bonus system. This has ultimately ledto a wage system where: The basic salary only made up 5-10 percent o f the total salary as a result o f a vague and unsustainable bonus system; The difference between the salary o f a huissier (lowest level public servant) and a director has fallen to a ratio o f 1:2. This does not provide any motivation to pursue a career inthe civil andpublic service; The bonus system has created wage differences o f 400 percent between Kinshasa and the provinces; The civil servant pensions are so low that personneldo not take retirement; The wage system for politicians and politically appointed civil servants is no longer linked to changes in civil service wages, and i s not consistent with the introduction and development o f a linked and coherent wage system 4 Table 1: General Civil Service (2006) with universalbonuses, without specific bonuses No Ranks Basic Kinshasa Travel Housing Bonus Bonus Net Salary Net Wage Travel Allowance Allowance Kinshasa Province - Kinshasa Salary - (CDF) Allowance Province I 1 Secr. General 7,980.00 9,202.00 1,000.00 2,500.00 139,200.00 6,000.00 158,882.00 14.980 2 Director 6,703.00 9,202.00 1,000.00 2,500.00 27,018.00 6,000.00 45,423.00 13,703.00 3 Department 6,463.00 9,202.00 1,000.00 2,500.00 24,765.00 6,000.00 42,930.00 13,463.00 Head 4 Office Manager 5,746.00 9,202.00 1,000.00 2,500.00 23,455.00 6,000.00 40,903.00 12,746.00 5 Senior Office 3,830.00 9,202.00 1,000.00 2,500.00 21,532.00 6,000.00 37,064.00 10,830.00 Clerk 1 6 Senior Office 3,032.00 9,202.00 1,000.00 2,500.00 20,734.00 6,000.00 35,468.00 10,032.00 Clerk 2 7 Office Clerk 1 2,394.00 9,202.00 1,000.00 2,500.00 20,096.00 6,000.00 34,192.00 9,394.00 8 Office Clerk 2 1,996.00 9,202.00 1,000.00 2,500.00 19,696.00 6,000.00 33,394.00 8,996.00 9 Auxiliary Staff 1,676.00 9,202.00 1,000.00 2,500.00 19,378.00 6,000.00 32,756.00 8,676.00 Member 1 I 10I Auxiliary StaffI 1,436.00 1 9,202.00I 1,000.00 1 2,500.00 1 13,000.00 16,000.00I 26,138.00I 8,436.00 Member 2 11I Huissier II 798.00I 9,202.00I 1,000.00I 2,500.00I 8,000.00I 6,000.00I 20,500.00I 7,798.00 The bonus system has therefore destroyed any logic that existed withinthe wage system. Apart from the universal allowances and bonuses shown inthe table above, many o f the so-called specific bonuses are in fact paid to government officers and civil servants on a monthly basis. It i s worth noting that these specific bonuses are only paid to a limited few, primarily Kinshasa-based public sector employees and civil servants. Some o f these bonuses are governed by the Civil Service General Statute. In accordance with this statute, the total amount o f the bonuses cannot exceed two-thirds the monthly salary. In practice, however, this i s not the case. Certain bonuses do in fact account for more than 10 times the basic wage. Additional bonuses have been created as a result o f pressure from the Trade Unions inorder to compensate for low wage levels. The official legal bonuses inthe General Statute include: 0 Laprime d'intkrim (interim bonus) 0 Laprimepour prestations supplkmentaires (bonus relatedto additionalbenefits) 0 Laprime des risques professionnels (allowance for occupational risks) Laprime de dipl6me (allowance for graduates) 0 Lesfrais de reprksentation (business expenses) 0 L aprime de brousse (hardship allowance for remote area assignments) 0 L aprimepourfonctions spkciales (allowance for special assignments) The other specific bonuses that are currently inuse include inparticular: 0 Laprime d 'encadrement de lapaie (payroll management allowance) 0 L aprime d 'e'tudes (study allowance) 5 0 L aprime deplanzjkation (planning assignment allowance) Laprime de contrde (monitoring assignment bonus) 0 Les primes sur base de rhocession (notamment duns les rkgies JinanciBres) (performance-based bonuses (particularly inthe revenue collection agencies)) The bonuses are fixed at a certain level, and do not respect the provisions o f the Public Service General Statute into account. This bonus system: i s excessively complicated and therefore difficult to manage. It i s therefore inefficient. 0 i s not able to guarantee wage certainty creates a salary that is not incentive-based individualizes salaries at the expense o f equality 0 is extremely vague 0 separates the duties assigned to a position into tasks that are paid separately and therefore becomes a source o f inequality favors the subjective allocation o fpay does not allow for an acceptable level o fpensions The wage system is in such disarray that major reforms are urgently required. A reform package should be introduced over a period o f four to five years in view of the government's fiscal situation. The following sections set out a comprehensive reform agenda for the wage system. The reforms proposed by the government for 2008 are then discussed and compared with the reform agenda given inthe first section. 2.2A comprehensive agendafor introducing theproposed reform principles Wage system reform in DRC should be based on universal principles applied in the majority o f modern countries. These principles should however be applied differently depending on the sector. The objective o f these reforms is to streamline the wage system by combining the existing wage scales and also to make the wage system more understandable by using simpler and more transparent wage rules. The principles o f the proposedwage system reforms include: 1. Introducing transparency by removing the current system o f bonuses and allowances, except for those bonuses defined in the revised law and an incentive-based bonus relating to a maximum o f 25 percent o f the total salary which could vary between the 6 ministries'. All the other specific bonuses should be eliminated and incorporated into the basic wage; 2. Introducing, through legislation, a principle by which the bonuses could not amount to more than 25 percent o f the total salary in order to conform to international minimumstandards; 3. Reintroducing a comprehensive basic wage in 2008, keeping at most the transport allowances as the only universal allowance; 4. Reducingthe differences betweenthe provincial and central salaries infour stages, by increasingthe level o f provincial salaries to 80 percent o f those ineffect at the central level. This will make the system more equitable, ensuring that people with the same position are all paid at similar levels. 5. Reintroducing wage differentials, ensuring that the differential between the wage o f a huissier and that o f a director i s 1:6 by 2011, 6. A second phase would include developing ajob classification and evaluation system, which could, in the medium term, lead to the creation o f a wage system based on a grid that would convey the complexity o f the work, the experience and the professional quality o f the civil servants. 7. Introducing a fund to finance retirement benefits. This should be set up gradually (with gradual increases inthe level of pensions). Within the framework o f these general principles, there are two possible scenarios for introducing the reforms relating to the first five points above, particularly with regard to the civil service governed by the Civil Service General Statute. Scenario 1: This would incorporate all o f the bonuses into the basic wage, except for the housing and transport allowances. Wage differentials would be increased to 1:6 (office messenger-director). The basic wage would be increased by 10 percent each year and the gap between Kinshasa and the provinces would be reduced by 20 percent each year over four years. The bonuses would be combined to form a single wage component, and would not exceed 25 percent o f the total wage o f an individual civil servant. In addition, this bonus would only be granted on the basis o f specific actions clearly defined by law. The impact o f this scenario on wage levels i s shown inthe tables below: 'There are many international examples o f this type o f practice, which allows the Public Financial Corporations inparticular to retaina wage element based on collective performance. 7 Table 2: Scenario 1: Changes in wages for Huissier, Senior Office Clerk 1 and Director in Kinshasa CHANGES IN THE CIVIL SERVICE PAY SCALE SCENARIO 1 KINSHASA 300000 250000 200000 150000 -+w- Senior Office Clerk 1 ~ Office Messenger 100000 50000 0 2006 2007 2008 2009 2010 2011 2012 Scenario 2: All bonuses and allowances would be incorporated into the basic wage, except for the transport allowance. Wage differentials would be increased to 1:6 (office messenger-director). The base wage would be increased by 10 percent each year and the gap between Kinshasa and the provinces would be reduced by 20 percent each year over four years. As in the scenario above, the calculations do not include the additional bonuses which should be restricted to a maximum of 25 percent o f the net wage and should be linked to the performance o f the organization or o f the individual. At the operational level, all current bonuses should be identified so that they can be eliminated and replaced by a single bonus that could vary according to the different institutions, according to their various functions2. The aim o f eliminating these bonuses is to avoid a situation where the wage system becomes opaque again. The advantage o f these two scenarios is that civil service wages retain some element o f competitiveness. 2Inparticular, the Public Financial Corporations andother organizations that generateincome could continue to pay a retrocession-based bonus to their staff. 8 Table 3: Scenario 2: Changes in wages for Office Messenger, Senior Office Clerk 1 and Director inKinshasa CHANGES IN THE CIVIL SERVICE PAY SCALE P I SCENARIO 2 KINSHASA ' I 250000 - "-- +Secretary General Senior Office Clerk 1 Office Messenaer I 1 2006 2007 2008 2009 2010 2011 2012 Table 4: Changes in wages for Office Messenger, Senior Office Clerk 1 and Director: Provinces CHANGES IN THE CIVIL SERVICE PAY SCALE SCENARIO 1 PROVINCES -SECRGEN 1 1 SENIOR OFFICE 1 ~ CLERK 1 OFFICE ' I MESSENGER l j i 2006 2007 2008 2009 2010 2011 2012 9 CHANGESTHECIVIL SERVICE PAY SCALE IN SCENARIO 2 PROVINCES 300000 250000 200000 +SecrGen 150000 -'Senior Office Clerk 1 Office Messenger 100000 50000 0 2006 2007 2008 2009 2010 2011 2012 Table 5: Wage changes SCENARIO 1: GAP BETWEENKINSHASA AND THE PROVINCES 180000 160000 140000 120000 100000 --eSecretaryGeneral ' 80000 - Senior Office Clerk Office Messenger 60000 40000 20000 0 2007 2008 2009 2010 2011 The proposed wage reforms would be introduced over a period o f four years and would apply to the entire general civil service in the broadest sense, including those civil servants governed by special statutes. This would make it possible to use a single scale for the whole country. The provinces could, however, be permitted to grant incentive-based bonuses up to a maximum amount that should not be exceeded (no more than 20 percent of total wages). 10 All parties should commit to these reforms, which may be subject to budget constraints. Wage policies should therefore take into account the state's budgetary possibilities and should be introduced gradually, consistent with the state's financial resources. 2.3 Fiscal impact General Civil Service An evaluation o f the fiscal impact o f this reform package was carried out. The calculations only apply to the civil service governed by General Civil Service Statute since the other professional groups are governed by a different wage system. The analysis related to 130,000 civil servants governed by the General Civil Service Statute, which make up 20-25 percent o f the civil service. A similar exercise should be carried out for the other professional groups, particularly teachers and medical personnel, as well as for the armed forces and the security services. Using the current number o f civil servants (registered in the provinces but paid in Kinshasa) the fiscal impact o f the measures described above (except for the pension component, which still remains to be developed) would be as follows: Table 6: Wage Bill/ GDPImpact I Wage Bill Impact 0 18 0 14 0.12 0 1 ,SCEN 1IN56 0.08 SCEN 2 IN % 0.06 0.04 0.02 0 2008 2009 2010 2011 11 Wage Bill Impact . . . .- ..I f .. . ........" . "I.. .. - El SCEh I h'o 2007 2008 2009 2010 2011 Table 7: Wage Bill/ TotalPublicExpenditureImpact Relative share of wage bill as part of total expenditure SCENARIOS 1 and 2 0.8 0.7 0.6 0.5 +SCEN1 IN %t 0.4 --E-- SCEN2 IN % - 0.3 0.2 0.1 0 2007 2008 2009 2010 2011 12 Relative share of Total Expenditure I 2007 2008 2009 2010 2011 I These scenarios represent an increase in the share o f the wage bill for GDP and total public expenditure, but this stabilizes over three to four years. In view o f the reforms that are necessary inthe other areas o f the civil service (status adjustment for 50,000 teachers, wage system reforms for specialized civil service sectors) ajob rationalization process i s clearly necessary in addition to the wage system reforms. This would make fiscal resources available, allowing the complete package o f reforms to be introduced, which, in our opinion, i s vital for establishing equality and merit-based components into the Congolese civil service wage system. 2.4Initial reform measures introduced aspart of theAugust and November, 2007agreements Initial reform measures are currently being introduced as a result o f government discussions and talks with the unions. These measures reflect, in part, the principles described above, focusing on improved transparency in the wage system and reduced discrepancies between the wages o f civil servants inKinshasa and those inthe provinces. These measures also reflect, to a certain degree, the reform agenda described in section 2.1. The primary, secondary andprofessional education sector The Government o f the Democratic Republic o f Congo signed an agreement with the trade union representatives on August 9, 2007 relating to a new wage scale for primary, secondary and professional education teachers. The mainreform measures included inthis agreement were as follows: 13 Incorporating transport and housing allowances into the basic wage Transitioning from three wage bands to two, namely Kinshasa and the provinces, as well as reducing the wage gaps that exist between these two bands Regularizing the status o f 22,000 staff, which were not accounted for in the 2007 Budget; Increasing the basic wage for all primary, secondary and professional education teachers These proposed reform measures will allow for a more simplified and transparent teachers' wage system. A case scenario was used to assess the impact o f the measures described above over the period 2007-2011based on the assumptions that the wage differential would be adjusted to 1: 6 for Director/ Office messenger, that wages would increase by 10percent each year and a wage gap o f 40 percent between Kinshasa and the Provinces would be retained. This impact i s shown inthe tables below Table 8: Changes in the wage scale for primary, secondary and professional education teachers inKinshasa WAGE SCALE CHANGES PRIMARY, - SECONDARY AND PROFESSIONAL EDUCATION TEACHERS - KINSHASA 350000 300000 250000 +Director 200000 150000 1 100000 Office Messenger 50000 0 2007 2008 2009 2010 2011 14 Table 9: Changes in the wage scale for primary, secondary and professional education teachers in the Provinces [[ I AND PROFESSIONAL EDUCATIONTEACHERS - 1 PROVlNCES 200000 - 150000 ~ 100000 "A#-- 1 , Office Messenger I 50000 1 2007 2008 2009 2010 2011 Replicating the reforms inthe rest o f the civil service The government made a commitment, as a result o f the agreements with the unions inthe education sector, to establish a more simplified and transparent wage system for all professional groups in the civil service from January 2008. In addition, it made a commitment to gradually harmonize wages inKinshasa with those inthe provinces. The mainreform actions resultingfrom the government's commitment include: Incorporating the transport and housing allowances and benefits into the basic wage, except for higher education and university, scientific research, agriculture and health professionals. For these, only the transport and housing benefits were incorporated into the basic wage. 0 Transitioning from three wage bands to two, namely Kinshasa and the provinces, as well as reducing wage discrepancies betweenthese two bands The impact o f this reform was assessed for the period 2008-2011 based on the assumption that wages would increase by 10percent each year. The impact i s shown intable 10below. 15 Table 10: Changes inthe Public Administration Payroll I I Changes in the Civil Service Payroll 1 1,000,000,000,000.00 I 900,000,000,000.00 ~ i 800,000,000,000.00 1I 700,000,000,000.00 600,000,000,000.00 500,000,000,000.00 400,000,000,000.00 TOTAL I / 300,000,000,000.00 200,000,000,000.00 100,000,000,000.00 I I 2007 2008 2009 2010 2011 2012 2013 Table 11: Impact of payroll on GDP- educationsystemreforms IMPACT OF PAYROLL (PR) ON GDP 2006.5 2007 2007.5 2008 2008.5 2009 2009.5 2010 2010.5 2011 2011.5 ~ 16 Table 12: Impact of payroll on total expenditure IMPACTOF PAYROLL(PR) ON TOTAL EXPENDITURES(TOT 1 EXP) (in %.) '+PR/TOT EXP % 1 1 2006 2007 2008 2009 2010 2011 2012 i The August, 2007 agreement will result inan increase inthe share o f the payroll for GDP and total expenditure in2007 and 2008. The share o f payroll compared to GDP and total expenditure will, however, slowly start to decrease from 2009 to 2011. Fiscal impact of reforms on the other Public Administration sectors The fiscal impact of the Government's current wage policy is shown inthe table below. Table 13: Impact of payroll on GDP IMPACT OF WAGES ON GDP 2007 2008 2009 2010 2011 2012 2013 17 Table 14: Impact of payroll ontotal expenditure WAGES/ TOTAL EXPENDITURE I 60 50 40 30 --eWAGES/TOTEXP 20 10 1I 2007 2008 2009 2010 2011 2012 2013 Introducing this wage policy reform will make it possible to stabilize the share o f the payroll for GDP and total expenditure. However, wage payments as a portion of public expenditure and GDP will remain at comparatively high levels, with the risk o f crowding out public investments. 2.5 Evaluating the reform orientation The reform measures that introducedby the government since August 2007 are worthy o f being promoted and maintained inall o f the sectors. The provinces will assume the costs for most civil servants inaccordance with the provisions inthe constitution relating to the transfer o f competencies. Inview of the fragile fiscal situation inthe provinces, the wage differential as well as the wage gap between Kinshasa and the provinces should be adjusted over a period o f four years. Actual wage policies cannot be introduced until these adjustments have been made and assuming that provincial public administration i s firmly established andhaswell defined, simple regulations. Even if a positive reform orientation has been established, the proposed measures only represent the first steps towards a comprehensive reform o f the wage system. Inorder to establish a credible and sustainable system, the other factors described in section 2.2 should also be addressed. The government must therefore adopt a medium-term strategic framework, which would include incentive-based measures to encourage career development (including increased wage differentials), a streamlined special bonus system, andthe development o f a new pay scale system based on modern human resource management principles. 18 3. Rationalization The rationalization o f personnel in the civil service i s key to the success o f the wage system reforms. The authorities are aware that the civil service, including the general civil service, has a comparatively high staffing level relative to the functions it carries out. There may be a lack o f qualified staff in certain sectors, but, obviously, once the staffing level has been assessed, a process to reduce the number o f positions should be introduced. This i s particularly important in view o f the decentralization process, which will require a comprehensive reorganization o f personnel (in terms o f quantity and quality at the level o f deconcentrated and decentralized agencies). It i s important to note that the rationalization process will involve the redeployment as well as the potential reduction o f personnel. But the main objective i s to adapt staff distribution to the jobs that currently exist. 3.1 At the central level The rationalizationprocess at the central level should include: a. a review o fthe current staffing levels relative to the available budgetedposts. b. a review o f the impact o f the decentralization process, which will lead to a reduction in the level o f functions carried out by the central government and linked to that, a reduction in the number o f positions at the central level, particularly inthe sectors for which the provinces will be exclusively responsible, as definedinthe constitution. The process o f reviewing functions should therefore start with the ministries for which a transfer o f responsibilities is planned: 0 1st group: Civil Service, Budget, Finance, etc. 0 2nd group: Health, Education, UrbanPlanning and Housing, Work and Social Affairs, Environment, Agriculture, etc. 0 3rd group: Shared competencies 3.2 At the local level The rationalization o f personnel at the local level will be key to the decentralization process. The transfer o f responsibilities and the development o f provincial institutions will require a complete change inorientation and fundamental changes inthe number o f civil servants (increased staff numbers in areas such as budget, finance, etc, and reduced numbers in other areas). A review o f provincial staffing levels as well as the methods o f transferring positions and civil servants should start immediately. This is particularly important given the reforms relating to the public finance transfer system, which will have a major impact on the capacity o f the provinces to pay wages. 19 3.3 Specific problems in the various sectors,for example, education. Transferring the costs related to the education sector to the provinces will have huge financial implications. It is worth noting that most o f the costs o f decentralization, which should be assumed by the provinces, relate to wage expenditure. The impact o f this expenditure on the provincial budgets i s not yet fully clear. Approximately one-third of staff working in this sector is, in fact, not yet accounted for in the civil service system. The salaries o f teachers who are not included inthe computerized civil service data base are completely paid by the parents o f students. These teachers represent between 26 percent (Bas-Congo) and 46 percent (Nord-Kivu) o f teaching staff, except in Kinshasa where the percentage i s only 4.5%. With help from development partners such as the World Bank, the government has introduced a process to regularize the status o f all (qualified) teachers currently working in the system. In addition, the government has made a commitment to cover the other costs currently paidby the parents. This process will reduce the burden on households but it will significantly increase provincial expenditure. As shown below, preliminary estimates indicate that most provinces will probably not be able to cover education expenditure, even without including those teachers who are not currently regularized and without phasing out parent responsibility for teacher salaries. Table 15: Distribution of regularizedand non-regularizedpersonnelinthe educationsector Province regularized YOregularized Non- regularized YOnon- regularized Totals Bandundu 50,831 65.0 27,386 35.0 78,217 Bas-Congo 24,092 79.8 6,094 20.2 30,186 kquateur 28,059 88.2 3,760 11.8 31,819 KasaLOccidental 18,510 74.5 6,337 25.5 24,847 KasaLOriental 16,420 67.3 7,976 32.7 24,396 Katanga 21,882 72.5 8,297 27.5 30,179 Kinshasa 31,714 100.0 0 0 31,714 Maniema 8,260 91.1 810 8.9 9,070 Nord-Kivu 11,044 53.6 9,542 46.4 20,586 Orientale 20,918 74.0 7,332 26.0 28,250 Sud-Kivu 14,45 1 79.6 3,698 20.4 18,149 Total RDC 246,181 75.3 80,828 24.7 327,009 Source: World Bank basedon information providedby the Budget and Primary, Secondary and Professional Education Sector Ministries. Higher education and university staff and those working in the non-formal education sector are not included. 4. Legal Framework The legal framework is a key tool for achieving the reform objectives. As mentioned in the introduction o f this summary, the reform process should be managed in sequential order. International experience points toward the use o f sequential reforms, based on managing the different professional groups separately, but usingequality and merit-based 20 principles that are, typically for the civil service, apolitical innature. This is the only way to make the reforms workable. Inaddition, in view o f the decentralizationprocess which will result in a gradual transfer o f responsibilities, the Civil Service General Statute should be reformed before the relevant statutes for the other professional groups (teachers, health sector personnel, etc.) are reviewed. The following approach has therefore been suggested: A. Developing a conceptual basis for separating the civil service into a civil service governed by the General Statute and a limited number o f special statutes, as well as a calendar for statutory reform. B. Separating civil servants governed by the Civil Service General Statute from those governed by special statutes. This could be introduced quite quickly since the distinction between the general civil service and the special civil service i s obvious (2008). C. Revising the general statute, including the elements relating to the wage system (2008), based on the principles described above. Removing special statutes for those who will be governed by the Civil Service General Statute. Introducinga new wage system for the general civil service with a basic salary that would represent approximately 80% o f the net salary. D. Beginninga study on amalgamating the special statutes that will remain effective (teachers, medical personnel, university staff, police, social services, agriculture, etc.) into four or five professional groups. (2008). E. Revising and reforming the special statutes, including the development o f a wage system specific to each professional group. (to be effective 2009). Introducing a new wage system for the specialized civil service with a basic salary that would represent approximately 80% o f the net salary. 5. Reformmanagement An integrated management approach to the entire reform process could potentially be counter-productive. Evenif the reform process relating to the general civil service could be managed by the Civil Service Ministry (in close collaboration with the Budget and Finance Ministries) the reforms relating to personnel governed by special statutes should be managed by the supervisory ministries for the various professional groups. The supervisory ministries should be primarily responsible for the reforms even though the Civil Service Ministryhas the role o f initiating the reforms. A working committee will be set up, with responsibility for proposing sector reform measures. This committee will include delegates from the Interior, Budget and Finance Ministries, as well as from the provinces, andwill report to the supervisory ministries. 21 Reform o f the general statute should, at the same time, be carried out in close collaboration with the Interior and Decentralization Ministry as well as the provincial officials, in order to find a solution that i s both acceptable and achievable at the provincial level. Conclusions This document reflects the World Bank's contribution as part o f the wage systemreforms inthe Democratic Republic of Congo. As we have emphasized, DRC does not have a transparent incentive-based wage policy. So there i s a pressingneed to reform the current system. The reforms should be introduced gradually in view o f the constraints that exist. These include, in particular, a lack o f organization with regard to personnel and inadequate budgetary resources. This approach would lead to the elimination o f all allowances, except for the transport allowance, with the result that, within the salary scale structure, the basic salary would represent 80 to 90 percent o fthe net salary. The provinces will take responsibility for certain sectors, such as education and transport, within the framework o f the decentralization process. Temporary measures, agreed jointly with the provinces, should therefore be introduced to manage these sectors until the package o f laws i s officially announced. This will prevent the central authorities from unilaterally taking decisions that may affect the provincial budgets. An example o f this is the agreement signedrecently between the central government and the unions relating to the increase inthe salary scale for teachers. 22 e