Tatyana Bogomolova, Gregorio Impavido, Montserrat Pallares-Miralles

# **Table 15: Macroeconomic** **<u>assumptions</u>**

|**Year**|**2004/05**|**2005/06**|**2006/07**|**2007/08**|**2010/11**|**2020/21 **|**2030/31**|**2075/76**|
|---|---|---|---|---|---|---|---|---|
|Real GDP Growth|5.4%|6.2%|6.1%|6.6%|6.0%|6.0%|3.5%|3.5%|
|Real GDP/Capita Growth|2.8%|3.6%|3.6%|4.1%|3.6%|3.9%|2.1%|2.7%|
|Real Wage* Growth|2.8%|3.6%|3.6%|4.1%|3.6%|3.9%|2.1%|2.7%|
|Inflation Rate|5.9%|3.5%|3.5%|3.5%|3.5%|3.5%|3.5%|3.5%|
|Discount Rate|5.0%|5.0%|5.0%|5.0%|5.0%|5.0%|5.0%|5.0%|

<mark>* Average wage in the private sect</mark> or Short- to medium-term assumptions regarding wage growth for the covered population were obtained from MPS (2005). The 2001 PRP set target salary levels based on the comprehensive 1999 job evaluation exercise. The 2001 PRP targeted real salary increases ranging between 41% and 78% for professional public officers at entry graduate job grades; between 19% and 37%for senior levels of professional and technical skilled jobs; around 17% for heads of department; and no nominal salary increase for Permanent Secretaries, directors and legal professional.<sup>29</sup> The PRP was supposed to be implemented within the subsequent three years with target salary levels to reach 75% of private sector salary levels of equivalent categories. The implementation of the PRP was delayed due to lack of funding.<sup>30</sup> Given the salary increases observed between 2002 and 2004, MPS expects that the 2001 PRP be implemented within 10 years.

Already with the delayed implementation, the public sector wage bill as a percentage of GDP increased between 1% in 1987 to 5.1% in the fiscal year 2003/05. As a way of comparison, public sector wage bill in sub-Saharan countries was just under 6% of GDP in 1996. This ratio is marginally higher than the average 5% observed in Asian and Latin American countries.<sup>31</sup> The public sector wage bill as a share of current expenditure increased in Uganda from 29% in 1996 to 38% in the fiscal year of 2003/04. This is marginally higher than the 35% average in Sub-Saharan countries.<sup>32</sup> The current ratio of wage bill over GDP or current public expenditure do not suggest that the 2001 PRP can be implemented in the short run. Hence, in the PROST simulation we adopted the MPS wage growth projections until 2014/15 (Table 16).

**Table 16: Assumed** **<u>average wage growth for the covered population</u>**

|**Year**|||**2004/05**|**2005/06**|**2006/07**|**2007/08**|**2008/09**|**2009/10**|**2010/11**|**2011/12**|**2012/13 **|**2013/14**|**2014/15**|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Real Averag|e Covered Wage|* Growth||||||||||||
||Government|employees|1.2%|3.6%|2.0%|1.9%|1.9%|1.9%|2.0%|1.9%|1.9%|1.9%|1.4%|
|||Teachers|3.0%|5.4%|3.2%|3.2%|3.1%|3.0%|3.0%|2.9%|2.8%|2.8%|2.8%|
|Real Private|Sector Av.Wage|Growth|2.8%|3.6%|3.6%|4.1%|3.9%|3.7%|3.6%|3.6%|3.6%|3.7%|3.7%|

*Average Covered Wage=average wage received by the covered population

Reaching the target 75% of the private sector salary level in the long run would require – under the above macroeconomic assumptions – an average annual growth of wages in the public sector by about 4% (real) over a period of 60 years which does not seem to be

> 29 For details of background and rationale supporting our wage growth assumptions see MPS (2005)

> 30 The projected funding gap for the fiscal year 2006/07 is already UGS 75 billion, or 9% of projected wage bill.

> 31 See MPS (2005).

> 32 See Lienert and Modi (1997).

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