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Coronavirus: Workers face salary cuts as firms struggle

Sunday March 22 2020

A woman seeks divine intervention over the

A woman seeks divine intervention over the coronavirus pandemic at Uhuru Park in Nairobi on March 21, 2020. Governments have been particularly worried about the effects of the Covid-19 pandemic on wages and salaries. PHOTO | SILA KIPLAGAT | NATION MEDIA GROUP 

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Civil servants could have their salaries slashed should the Covid-19 pandemic hit crisis level, a high-ranking government official told the Nation on Saturday.

The money will then be directed to fighting the spread of the virus, specifically to create makeshift hospitals in different parts of the country, akin to those built in Wuhan and other Chinese cities where the virus has ravaged communities since December last year.

Public Service Cabinet Secretary Margaret Kobia downplayed the fears, but an official who sits in the National Emergency Response Committee said the option of slashing salaries by as much as half was on the cards, but would only be enforced as a last resort.

HIGH COST OF LIVING

Should that happen, it would be a big blow to employees who are already struggling with a high cost of living. The official, who asked not to be named because of the sensitivity of the matter, said this would be “an extreme measure from all pointers”, and that the government hopes to contain the virus before it pushes it to that corner.

Were this to happen, the source clarified, all affected employees would get their full pay once the scourge is decisively brought under control.

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The Union of Kenya Civil Servants (UKCS) warned that it would challenge such a move in court. “I have seen countries suffering the same pandemic offering safety nets to citizens and workers, why would they want to do the opposite here? We will oppose any pay cut with our blood,” UKCS deputy secretary-general Jerry Ole Kina said.

But the fear of being forced to contend with a pay cut transcends the civil service, especially after Kenya Airways announced similar measures, with the chief executive Allan Kilavuka agreeing to take an 80 per cent salary cut and the rest of the workforce being asked to take 75 per cent pay cut.

The aviation and hospitality industries have been particularly hit hard by the pandemic. In the US, Delta Airlines on Friday warned the coronavirus pandemic will cut its second-quarter earnings by 80 per cent compared to 2019, and ratings agency S&P said other US carriers faced similar fates.

REVENUES
“We’re now projecting our June quarter revenues will be down by $10 billion compared to a year ago — an 80 per cent reduction,” Delta’s chief executive Ed Bastian said in a note to employees.
Bastian said 13,000 employees have taken voluntary unpaid leave, and “we could use more”. That is an increase from the 10,000 he reported on Wednesday had gone on leave, foregoing salary but maintaining benefits such as health insurance.

The virus’s spread has forced carriers, including Kenya Airways and Ethiopian Airlines, to slash routes as countries shut their borders and imposed movement restrictions.
Employees in the private sector are worried that they might be asked to follow the same painful route should the Covid-19 pandemic continue to hit the economy.

Mr Kina regretted that the prevailing situation has meant that civil servants cannot engage in other gainful activities to supplement the “meagre salaries” they earn.

“Unless they are talking about those who are handsomely compensated, like commissioners and such senior staff, there is really nothing to cut from what we are paid,” he said.

Kenya Union of Post-Primary Education Teachers (Kuppet) secretary-general Akelo Misori said it would be unfair for the government to cut the salaries of teachers as they are “already facing bad economic times”.
The Teachers Service Commission spends over Sh200 billion on salaries and allowances annually. The salaries are negotiated by two unions, the Kenya National Union of Teachers (Knut) and Kuppet. Already, the two unions have submitted new proposals asking for salary increments.

PANIC
Responding to our questions, Prof Kobia sought to reassure civil servants that all was well, and that they should not panic. “It is too early to think of half pay,” she said. “First, the government has made arrangements through Cabinet Secretaries for staff to work, take leave, and work in shifts or online. All departments are finding innovative ways of serving under the Covid-19 situation.”

Data shows the average pay for civil servants is about Sh78,000 per month, which is an increase from the Sh67,000 it cost the taxpayer to keep each of the 700,800 employees in 2015. Seventy-five per cent of the pay is earned in allowances.

Though the reality on the ground and on payslips is very different, given the big disparities and distortions that have come to characterise the public sector wage bill, if one were to share the Sh795 billion wage bill equally, every government employee would take home about Sh900,000 annually.

Governments around the world have been particularly worried about the effects of the Covid-19 pandemic on wages and salaries as businesses scale down operations or completely shut down. While some have proposed measures to pick the salaries tab and shield companies from losses, others have proposed tax breaks and bailouts.

The British government on Friday said it would help cover the wages of people hit by the Covid-19 outbreak as it tightened restrictions to curb the spread of the disease.

Prime Minister Boris Johnson told cafes, pubs, bars, restaurants, nightclubs, theatres and leisure centres to shut as soon as possible to cut the risk of transmission from close contact, while Finance minister Rishi Sunak announced what he said was an “unprecedented economic intervention” to protect jobs after a wave of redundancies caused by a slump in business.

“The government is going to step in and help pay people’s wages,” he said. Firms of any size or non-profits can apply for a grant of up to 80 per cent of salaries of retained workers, up to a total of $2,900 a month. The payments will be backdated to March 1 and be available for about three months, although he did not rule out extending the scheme.

STIMULATE GROWTH
In Kenya, the government is looking to inject Sh141 billion into the economy to stimulate growth.

In the race to shore up the depressed economy, the government is preparing to pay off Sh47.3 billion in pending bills at the national government out of the Sh141 billion budget, Sh58.1 billion in pending bills in the counties and Sh27.6 billion in VAT refunds.

The Central Bank has also released Sh7.4 billion that it remained with from the mop-up of the old Sh1,000 banknotes.

Speaking during a meeting with President Uhuru Kenyatta at State House, Nairobi, on Friday, CBK Governor Patrick Njoroge said the bank is giving back the money to help the country contain the virus.
“As you recall, in September last year we concluded the demonetisation of our currency relating to our old generation Sh1,000 banknotes. As a result of that, Sh7.4 billion worth of banknotes never came back to the system,” he said.

President Uhuru Kenyatta has also announced a further Sh1 billion allocation by the government for hiring more health workers.

The additional funds will ensure the government brings on board enough manpower to support those already in the field working to save lives.

The World Bank, on the other hand, has given the Kenya government Sh6 billion to help combat the coronavirus pandemic.

PREVENTION

The money will be used to mobilise response capacity, strengthen multi-sector platforms and help in monitoring and evaluation of prevention and preparedness.

It will also help in enhancing disease detection capacities and mobilising response capacity through trained and well-equipped frontline health workers.

Broken down, Sh5 billion of the funds was received from the bank’s Covid-19 facility while Sh1 billion was sourced from the Contingency Emergency Response component of Transforming Health Systems for Universal Care Project.

World Bank had committed an initial package of about Sh120 billion to assist countries in coping with the health and economic impacts of the global outbreak.
The Covid-19 pandemic has shaken markets globally. The shilling on Friday closed at its lowest level since 2015.

By close of trading on Friday, the shilling was trading at 105.0971 against the dollar as the market expectedly reacted negatively to the pandemic.

Reporting by Justus Wanga, Angela Okoth and Faith Nyamai. Additional reporting by AFP.