Civil Service Pay Hike Rings Hollow Without Structural Reforms: Experts

Commission estimates additional 160bln Birr needed to meet payroll

The Civil Service Commission has announced a sweeping salary increase for government employees effective September, but economists caution that the adjustment will only offer short-term relief unless it is backed with deeper structural reforms to tackle inflation, production shortages, and heavy and overlapping taxation.

The Commission disclosed on Monday that the increment will extend beyond the civil service to other government institutions and push annual salary spending to 560 billion Birr—160 billion Birr higher than the allocation under the federal spending bill approved by Parliament two months ago.

In September, the minimum monthly salary threshold will rise to 6,000 Birr from 4,760 Birr, while the ceiling will nearly double to 39,000 Birr from close to 21,500 Birr. Starting pay for employees holding an undergraduate degree will jump 65 percent to 11,500 Birr.

Officials hope to see the overdue increments improve the livelihoods of civil servants and shield them from macroeconomic pressures. However, experts are divided on whether the new development can deliver its intended outcome.

Economists like Woretaw Bezabih (PhD) argue that pumping money alone will do little to address the problems plaguing workers across the country.

“I don’t think so,” said Woretaw, when asked whether the increase would improve the lives of government employees.

“What will really change is the supply side—food, clothing, housing, medicine, education, transportation, and other provisions. Increasing the number of investors, both local and international, boosting production, providing more housing, more food, more healthcare, more education, that’s what matters. Just pumping more money into people’s hands, I believe, won’t solve the issue,” he told The Reporter.

The expert recalled a historic parallel, warning Ethiopia could repeat mistakes witnessed in other countries

“I remember in the Soviet Union under Perestroika, life became very difficult. As students, we used to live on 100 rubles, but suddenly we were given 1,000 rubles. Yet, we couldn’t live on 1,000 rubles the way we did on 100, because when supply networks collapsed, there was nothing in the market,” said Woretaw.

According to him, while the raise might grant “some moral relief” in the short run, it risks being eroded by inflation unless coupled with policies to strengthen production.

“What the government really needs to do is boost productivity, ensure peace, strengthen supply chains across the country, uphold the rule of law, and make sure producers don’t face shortages. Farmers should be supported to produce more—with tractors, with combine harvesters, with locally manufactured fertilizers,” said the economist.

Woretaw also criticized the recurring emphasis on wage hikes rather than production.

“What most people are asking for is simply ‘more money.’ But from my side, and that of many colleagues, what we don’t understand is why the focus is always on increasing salaries rather than on strengthening production and supply,” he said.

The economist warned that without addressing inflation, no amount of pay rise will suffice to meet people’s needs.

“No matter how much more money we are given, we will not be lifted to a level that can withstand the current inflation. Even if our salaries were multiplied many times over, it wouldn’t be enough,” said Woretaw. “In today’s inflated environment, there is no scenario where an increase in salary can guarantee stability.”

He observes that heavy taxation cancels out much of the relief.

“For someone like me, even if my salary improves moderately, at the end of the day the tax adjustment might leave me with only 500 birr of real relief. That means 6,000 Birr a year. But what can I do with that? Buy a goat? Make a small investment?” Woretaw asked.

He also linked inflation to political instability and external debt.

“The inflation we are facing is artificial—caused by unstable politics. It’s not natural. There’s also the inflation tied to foreign exchange rates. Beyond temporary relief, our macro economy remains tied down by external debt. For every loan we receive, we must repay with interest. And to repay; the dollar is always racing ahead of the Birr at a progressive rate, dragging our currency into continuous devaluation,” said Woretaw.

Others see the salary bump as a necessary policy within the framework of Ethiopia’s economic transition.

“Following the cost of living index and adjusting wages accordingly is a good and necessary thing. The adjustment is positive, especially since government employee salaries had not been revised for a long time,” said Constantinos Berhe (PhD), a public policy expert and economist.

He stressed that the increase cannot be separated from broader reforms.

“The salary increment cannot be separated from the macroeconomic reforms—they are closely linked. Without the active participation of civil servants, the macroeconomic program cannot succeed,” said Constantinos.

He pointed to liberalization efforts, including the launch of Ethiopia’s first capital market in 50 years and the restructuring of state-owned enterprises.

“Through Ethiopian Investment Holdings, the government is beginning to transfer state-owned enterprises into the private sector via the capital market. The government’s core duties should be protecting the country, preventing its people from falling deeper into poverty, and building a healthy society through education and healthcare,” he said.

However, Constantinos acknowledged that inflation continues to pose a threat.

“The government has managed to bring inflation down from 30 percent to 14 percent, but even 14 percent is very high. At the global level, even two and three percent inflation is considered challenging for both economies and citizens,” he noted.

External shocks, currency depreciation, and internal instability continue to fuel rising costs, according to the expert. He concedes that without a leash on inflation, salary hikes like the one announced this week will only provide temporary relief.

Both experts flagged Ethiopia’s heavy tax burden as undermining the salary hike’s effectiveness. Woretaw argued that if money goes round and round, only to be taken back in taxes, the balance shifts to zero.

Citing comparative studies, Constantinos pointed out that Ethiopia’s 35 percent top-category personal income tax rate is among the highest in sub-Saharan Africa and stated that the issue requires institutional negotiation.

“Tax policy must be discussed not by isolated individuals giving personal opinions, but by organized institutions—such as trade unions and professional associations—who can sit with the government and negotiate,” he said.