Government and public sector labour unions have resolved to conclude negotiations for 2014 wages before the reading of the fiscal budget in November, as part of reforms to rein-in state expenditure on workers’ compensation.

Wages and other compensation for government employees are the largest sector of state spending, equivalent to 72 percent of tax revenue in 2012. Government has been at pains to reverse this situation, which crowds out critical spending on social investments and infrastructure.

More often than not, wage discussions have happened after government expenditure estimates have been approved by Parliament -- causing spending dislocations whenever negotiated pay increases have exceeded the budget’s projections.

Kweku Ricketts-Hagan, a Deputy Minister of Finance who confirmed the decision to the B&FT, said this step will improve fiscal management by bringing certainty to wage-expenditure projections.

“What has happened most times in the past is that wage negotiations happened after the budget had been read, and then we created problems such as arrears. But then, if we know in advance what we’ll be spending, we can build it into the budget.”

Kofi Asamoah, Secretary-General of the Trades Union Congress, confirmed the agreement to hold wage talks before November, adding that the process will begin with negotiations over a new national daily minimum wage. The minimum wage is now at GH¢5.24 (US$2.62), up 17 percent from last year.

“This idea of negotiating wages before the budget is read has been on the drawing board for years. It was only once that we were able to do that. We are all committed to it as it helps government to make adequate budget provision for wages,” Mr. Asamoah said.

He added that negotiations will be based on the projected inflation for 2014, the general cost of living and related factors.

“Normally, the projected average inflation for the ensuing year is known by the end of the year. This year, for instance, the projection is 8.9 percent.”

Based on this projection, public sector workers agreed to receive a retroactive 10 percent jump in salaries during the 2013 negotiations concluded recently. The 10 percent rise, the lowest since 2010 and down from 18 percent in 2012, is consistent with plans to contain growth of the wage bill, said Mr. Ricketts-Hagan.

Ghana’s severe fiscal slippage in 2012 -- when the budget gap of 11.8 percent of GDP was almost twice the projected level -- was due largely to extra unbudgeted spending on wages, Minister of Finance Seth Terkper said in March.

Mr. Terkper has subsequently stated that the current trajectory of public sector wage growth is “unsustainable” and ought to be stemmed to bring Ghana in line with sub-regional norms.

The West African Monetary Zone (WAMZ), the group of six regional economies -- including Ghana -- which plan to have a common currency by 2015, has prescribed a wage-bill-to-tax-revenue ceiling of 35 percent for member-countries.

In April and June, the IMF urged government to “gain control over the wage bill” and conduct a thorough audit of the public sector pay-roll. Estimates are that there are about half-a-million workers on the pay-roll, but this number is believed to include a lot of fictitious or “ghost” workers.

The Fund also recommended multi-year wage negotiations to facilitate medium-term budget planning. Mr. Ricketts-Hagan said government will consider this proposal. “It’s something that is on the table. As part of the fiscal reforms, this is something that we may be looking at.”