News: Finance Ministry seeks Council of Ministers' approval for salary increases ranging from 5% to 332% for 2.4 million public servants

Addis Abeba – The Ministry of Finance has submitted a proposal to the Council of Ministers requesting formal approval for a substantial salary increase for approximately 2.4 million public servants.

If approved, the adjustment would take effect on 11 September, 2024.

In a letter dated 03 September, 2024, and addressed to the Prime Minister’s Office, Finance Minister Ahmed Shide outlined the proposed salary increase. The adjustment would require an additional budget of 91.4 billion birr.

This proposal follows a recent announcement by Prime Minister Abiy Ahmed regarding significant salary increases for public servants.

The Ministry’s proposal is accompanied by a comprehensive study that provides detailed justification for the proposed salary increases. 

According to the letter, the national macroeconomic committee reviewed the study before it was submitted to the Council of Ministers.

The study indicates that 2.4 million government employees would benefit from the proposed salary adjustment. This includes 2.3 million federal employees, as well as members of regional police forces, the Ethiopian National Defense Force (ENDF), and the Federal Police Commission.

Citing a survey conducted by the Ethiopian Statistical Service in June 2022, the study reveals that of the 2.3 million civil servants, 1.1 million (47.94%) earn less than 6,000 birr per month. This group is classified as living below the extreme poverty line. 

Another segment, comprising 946,306 civil servants, earns between 6,000 and 10,000 birr per month and is considered to be living below the standard poverty line.

Additionally, approximately 253,297 government employees earn more than 10,000 birr monthly. 

The study concludes that close to half of government workers are living in extreme poverty and are disproportionately affected by rising living costs.

To address the financial hardship faced by these civil servants, the study recommends a significant salary increase for lower-income employees, proposing a wage increase of up to 332%. This would raise the minimum monthly salary for a government employee from 1,100 birr to 4,760 birr.

On the other hand, those earning the highest monthly salary of 20,468 birr would receive a 5% raise, amounting to an increase of 1,023 birr.

Prepared jointly by the Ministry of Finance and the Civil Service Commission, the study was conducted in response to the comprehensive macroeconomic reforms initiated by the government in late July 2024.

Since 28 July, 2024, Ethiopia has transitioned from a crawling peg exchange rate system to a market-based foreign currency regime. This reform resulted in a significant depreciation of the local currency, the birr.

Prior to the adjustment, commercial banks were trading the birr at approximately 56.55 to the dollar. By 05 September, 2024, the buying rate at the state-owned Commercial Bank of Ethiopia (CBE) had risen to 106 birr per dollar.

The depreciation of the local currency has led to a noticeable increase in prices throughout the country, particularly in Addis Abeba. This has placed additional financial strain on fixed-income earners, such as civil servants.

Prices for certain goods, especially imported items and essential domestic products like oil, sugar, and onions, have risen significantly in various markets across Addis Abeba.

According to traders in Merkato, the price of a five-liter container of cooking oil has increased from 900 to 1,200 birr since the implementation of the macroeconomic reforms. 

Similarly, the price of sugar has risen from 100 birr per kilogram to 116 birr.

In addition to its impact on fixed-income earners, the World Food Program (WFP) has recently expressed concern over the increasing challenges it faces in ensuring safe and timely food deliveries to Ethiopia’s most vulnerable populations.

The WFP attributes these challenges to rising inflation, among other factors.

According to the United Nations agency, the depreciation of the birr, resulting from recent macroeconomic policies, is expected to have a direct negative impact on impoverished households.

“The introduction of free-floating exchange rates and the subsequent depreciation of the birr are anticipated to have an immediate detrimental impact on poor households,” WFP forecasted. “Elevated food prices are one of the main factors contributing to acute food insecurity by restricting economic access to food.” AS