Malawi - Public sector management review : selected issues (Vol. 1 of 2) : Main report

Report No. 9643-MAI Malawi Public Sector Management Review Selected Issues (In Two Volumes) Volume l: Main Report March 31, 1993 Country Operations Division Southern Africa Department Africa Region FOR OFFICIAL USE ONLY Documnwt of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Malawi Kwacha (MK) US$ 1.00 = MK 4.0 MK 1.00 = US$ 0.25 MK 1.00 = 100 tambalas FISCAL YEAR April 1 - March 31  FOR OFFICIAL USE ONLY ABBREVIATIONS ADMARC Agricultural Development and Marketing Corporation AM Air Malawi Limited ASAC Agricultural Structural Adjustment Credit BWB Blantyre Water Board CBM Commercial Bank of Malawi CCU Coordinating Change Unit, OPC DEMATT Development of Malawian Traders Trust DEVPOL Statement of Development Policies, 1987-1996 DPMT Department of Personnel Management and Training DSB Department of Statutory Bodies, OPC ECOF Export Credit Guarantee Facility EP&D Department of Economic Planning and Development, OPC ESCOM Electricity Supply Conmmission of Malawi INDEBANK Investment and Development Bank of Malawi INDEFUND Investment and Development Fund of Malawi INDETRUST Investment and Development Trust of Malawi KF'CTA Kasungu Flue-Cured Tobacco Authority LWB Lilongwe Water Board MDC Malawi Development Corporation MDI Malawi Dairy Industries MEDI Malawian Entrepreneurs Development Institute MEPC Malawi Export Promotion Council MHC Malawi Housing Corporation MIDCOR Mining Investment and Development Corporation Limited MIM Malawi Institute of Management MR Malawi Railways Limited Mfl Ministry of Trade and Industry MUSCCO Malawi Union of Savings and Credit Cooperatives Limited NBM National Bank of Malawi NBS New Building Society NICO National Insurance Company Limited NSO National Statistical Office OPC Office of the President and Cabinet PER Public Expenditure Review PFP Policy Framework Paper POSB Post Office Savings Bank PSMR Public Sector Management Review RBM Reserve Bank of Malawi SACA Smallholder Agricultural Credit Association SCA Smallholder Coffee Authority SEDOM Small Enterprise Development Organization of Malawi SME Small and Medium Enterprises SPC Secretary to the President and Cabinet SSA Smallholder Sugar i2ithority SSE Small Scale Enterprises STA Smallholder Tea Authority TF Treasury Funds UNDP United Nations Development Program USAID United States Agency for International Development WICO Wood Industries Corporation Limited This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  This report is based on the findings of a mission which visited Malawi in January 1991. The mission comprised Roger Sullivan (Senior Public Sector Management Specialist and Team Leader), Susan Goldmark (Public Enterprise Specialist), Noel Kulemeka (Program Officer) and Stephen Lister (Development Economist/Consultant) of the World Bank; Cuthbert C.M. Mkandawire and John Mataya (Management Development Consultants at the Malawi Institute of Management), Roger Ganse and Norman Kelley (Management Specialists, Development Management Associates); and Michael Kauka of the Department of Personiel Management and Training, Malawi Government. Ladipo Adamolekun (Principal Management Specialist) led the Bank Team that discussed the report with Government in June 1992. (Messrs. Kulemeka, Mkandawire, Mataya and Ganse, who were in the study mission, also participated in the discussion). Government broadly accepted both the analysis and recommendations in the report. A few modifications have been made to reflect Government's comments and observations. It emerged from the discussions that Government would like to implement the recommendations in the report through a Bank-supported institutional development project. The salient features of the proposed project are summarized in a Postscript. Awatif Abuzeid and Roselyne Leroy provided support in compiling and processing the report.  TABLE OF CONTENTS EXECUTIVE SUMMARY CHAPTER 1: BACKGROUND AND INTRODUCTION A. OVERVIEW . ........................................ 1 B. APPROACH .......................................... 2 C. RECENT ECONOMIC PERFORMANCE ....................... 3 CHAPTER 2: MANAGEMENT ISSUES IN THE CENTRAL GOVERNMENT MANAGEMENT OF CIVIL SERVICE EMPLOYMENT AND WAGES ... 4 (i) Employment ............ .......................... 4 (ii) Wages ........................................... 6 B. MANAGEMENT OF COMMON SERVICES ........ .. ........... 16 (i) Excessive Staff Turnover ........ ...................... 19 (ii) Excessive Vacancies .......... ....................... 21 (iii) Insufficient Understanding Within the Common Services of their Roles and Functions ........ ...................... 22 C. MANAGEMENT OF GOVERNMENT MINISTRIES AND DEPARTMENTS 23 (i) Background and Approach .23 (ii) Identification of Common Management Problems .24 (iii) Factors that Contributed to the Success or Failure of Previous Efforts to Improve Management Practices .25 (iv) Potential Solutions for Improving Management Practices .26 CHAPTER 3: MANAGEMENT OF THE PARASTATAL SECTOR A. BACKGROUND ....................................... 28 (i) Definition ........................................ 28 (ii) Impact on the Economy ............................... 29 (iii) Financial Overview of Parastatals and Treasury Funds .... ........ 30 B. INSTITUTIONAL FRAMEWORK OF PARASTATALS .... .......... 31 (i) Department of Statutory Bodies .......................... 32 (ii) Ministry of Finance, Parent Ministries and the Department of ESconomic Planning and Development .37  -2 - C. OPERATIONAL EFFECTIVENESS OF STATUTORY BODIES ..... ... 38 (i) Corporate Planning and Budgeting ........................ 39 (ii) Boards of Directors .................................. 40 (iii) The Management of Parastatals .......................... 42 (iv) Wages and Salaries .................................. 44 (v) Housing Benefit .................................... 45 (vi) Other Benefits ..................................... 47 (vii) Training ......................................... 47 D. TREASURY FUNDS ORGANIZATION AND PERFORMANCE ........ 49 (i) Ministry of Finance Supervision .......................... 49 (ii) Operational Effectiveness of Treasury Funds .................. 51 CHAPTER 4: CONCLUSIONS AND STRATEGY FOR MANAGING THE CHANGE PROCESS A. CONCLUSIONS .53 B. STRATEGY FOR MANAGING THE CHANGE PROCESS ..54 PO SCRIPT ................................................... 56 TABLES 2.1 Number.and Increase in Civil Service, Established Positions, 1980/81-1987/88 .... 4 2.2 Malawi - Civil Service Establishment 1985/86-1989/90 .................. 5 2.3 Public Expenditure on Wages and Salaries .......................... 8 2.4 Selected Government Salaries .................................. 9 2.5 Ratio of Government Salaries to Urban Minimum Wage .................. 10 2.6 Malawi - Civil Service Salaries by Category 1974/75-1990/91 (Index) .... ..... 11 2.7a Mean Basic Monthly Earnings of Skilled Employees by Sector, and Major Occupational Group and Citizenship (1987) .13 2.7b Mean Basic Monthly Earnings of Skilled Employees by Education Qualifications . . 14 2.8 Numbers of Civil Servants Belonging to Common Services in 1990/91 .17 2.9 Rate of Postings 1/1/90 - 21/12/90 .19 2.10 Vacancy Situations as of December 31, 1990 .21 2.11 Potential Solutions for Ministry/Department Management Problems .26  - 3 - ANNEXES Annex 1 Summary of PSMR's Recommendations Annex 2-1 Malawi - Economic Classification of Central Government Recurrent Expenditures Annex 2-2 Malawi - Targets for Total Government Wage/Salary Bill Annex 2-3 Malawi - Common Service Cadres Annex 2-4 Recommnendations on Individual Common Services Annex 2-5 Methodology Overview for Reviewing Management Issues in Government Ministries and Departments Annex 2-6 Examples of Dysfunctional Management Practices in Ministries and Departments Annex 3-1 Public Enterprises as of January 1991 Annex 3-2 Consolidated Financial Summary of Parastatals Annex 3-3 Net Financial Flows Between Government and Parastatals Annex 3-4 Profit and Loss Data on Parastatals - 1984/85-1989/90 Annex 3-5 Financial Summary of Non-Commercial Parastatals Annex 3-6 Profit and Loss Data on Commercial Treasury Funds Annex 3-7 Selected Financial Indicators, Non-Commercial Treasury Funds Annex 3-8 Wages Scales in Parastatals at 31/03/90 Annex 3-9 Employment of Commercial Parastatals Annex 3-10 Parastatals Costs for Employee Housing in 1989/90 Annex 3-11 Training of Parastatal Employees 1989/90  EXECTIVE IMMAR 1. The Public Sector Management Review (PSMR) was undertaken jointly by the World Bank and the Government of Malawi. It is not a comprehensive and encyclopedic review of all public sector management issues facing the Government, nor does it reflect necessarily the priorities for public sector reform that a non-Malawian may have for the country. What it does reflect are the issues that the Government has selected - in this case "the Government" refers to the Secretary to the President and Cabinet (SPC) and his Principal Secretaries - as the ones that are to be initially examined as part of a process, which, if it proves useful to the Malawi Government, may be extended to cover additional areas. The Government also specifically noted that it was not interested in another "management study" which resulted in little or no change. Thus PSMR was designed with an emphasis on process and action planning; all the answers are not presented herein, instead problems are identified and processes are recommended that could result in improved public sector management. 2. PSMR covers two areas of the public sector. It examines selected management issues affecting the Central Government (i.e., the core and sector ministries, exluding the legislative and judicial branches, the police and defense establishments and the local government structures) and it reviews management of the parastatal sector. The report concludes with recommendations on creating local capability for introducing management improvements on an ongoing basis. A. MANAGEMENT I-SSUES AFFECTING E CENTRAL GOVERN-ME 3. PSMR examines issues in three areas: (i) management of public sector employment and remuneration; (ii) management of Common Services; and (iii) management of Government Ministries and Departments. 4. Public Sectr Emloyment. PSMR found that public sector employment, in terms of established positions, had increased by 12 percent over the period 1989-91. While this did not reflect an increase in actual employment of that magnitude, given the high level of vacancies (A0 to 40 percent of middle and senior positions in some Ministries anti Departments) and the lack of statistical information on actual number of employees at a given time, ,c was still a figure to be concerned about as it represented positions that could be filled once the recruitment/promotion process improved; it also represented a potential claim on the Government budget. The growth had taken place largely in positions outside the priority areas of health, agriculture and education. 5. PSMR concludes that continued high growth in the number of Central Government positions could undermine Government's future fiscal stability, particularly if these positions were filled. Government needs to exert more control over the growth of established positions and be aware of the fiscal implications of such growth. PSMR recommends that Government strengthen establishment and employment controls by (i) making the Establishment Register an authoritative document, published annually along with the Budget; (ii) ensuring that recruitment procedures include a check that posts are established and vacant before recruitment proceeds; (iii) using forward projections (ceilings) of Establishment posts as a device for manpower planning in Ministries and Departments; and (iv) improving monitoring of numbers of Established posts that are filled as well as of non-Established posts.  - ii - 6. Public Sector Remuneration.1' PSMR documented the trends in public sector remuneration and noted the growing divergence between salaries paid to senior civil servants and those received by senior officials iP the parastatal and private sectors. The gap at the bottom of these structures was much narrowf:r, in part the result of the 1989 Government pay increase, which substantially favored the lower ranks of civil servants and significantly reduced the compression ratio, One of the reasons for the growing divergence between public sector salaries and those in the parastatal and private sectors is the frequent adjustment in public sector salaries. While the parastatal and private sectors adjust salaries annually to account for inflation and profitability, the Government has a tradition of infrequent adjustments, once every few years. Often these are large and make up much of the lost ground, but overall this system does not promote efficiency nor protect civil servants' ineome levels in times of high inflation. 7. Non-cash benefits, particularly housing, provide a substantial benefit to employees in the civil service, as well as those in the parastatal and private sectors. Housing, however, is not available to all civil servants, only about one-third benefit from it and they are usually the ones that have been in service the longest. Parastatal and private sector companies also have housing programs, but the benefits are usually available to all staff at a given grade level. PSMR notes that Government has announced its intention to get out of the ownership of housing. Government ;s working wiih the Bank, UNDP and other donors to devise purchase schemes and other mechanisms to achieve this objective. 8. PSMR recommends that Government should adjust salaries regularly, preferably on an annual basis. Government should consider increasing salaries at the middh. and higher levels at a more significant rate than at the other levels in order to improve the attractiveness of working in the public sector, particularly for the key people who are needed in management positions. Government also needs to strengthen its capacity for the timely analysis of remuneration issues. 9. Management of the Common Services. PSMR looked at how the Common Services, which account for about 20-25 percent of all civil servants, were being managed. The Common Services include such specialties as the accounting and administrative cadres and their members work across Ministries and Departments. Of the nine common services. PSMR recommends that eight be retained, but that the incipient messengerial common service be disbanded as there are no strong reasons for its retention. 10. PSMR identified three major problems with the operations of the Common Services: excessive staff turnover, excessive vacancies, and insufficient understanding within the Common Services of their roles and functions. The first two extend beyond the Common Services and apply to the civil service as a whole. To reduce turnover rates, PSMR recommends that Government adopt guidelines on re-posting and improve personnel record keeping, that it encourage guidance instead of transfer, and that it develop better training plans. For vacancies, PSMR recommends that Government adopt the specific measures Significant pay increases were granted to all civil servants in April and May 1992. Besides the huge increase in the overall wage bill with negative consequences for the budget, the increases did not change the existing compression ratio nor did they redress the imbalance between civil service pay levels and those in the parastatal and private sectors. The proposed Second Institutional Development is expected to address these pay issues. (See Postscript).  - iii - recently put forth by a team from the Malawi Institute of Management that would streamline the recruitment process, reducing average tecruitment time from 32 to I weeks, and improve on the current time It takes for promotions. Finally, on improving the understanding of the roles and functions in the Common Services, PSMR recommends introducing Schemes of Service, procedure manuals, training programs, and appropriate evaluation systems for each. 11. Management of Government Ministries and Departments. In tackling this piece of work, the SPC specifically wanted PSMR to look at a number of previous management studies - many of which had not resulted in any change in management performance - to determine if there were a set of common problems that kept reappearing and whether there appeared to be any successful approaches at resolving them that could be extended throughout Government. The SPC specifically did not want another set of consultant-formulated prescriptive measures based upon inappropriate management models. 12. PSMR reviewed management studies of several Ministries (Agriculture, Education, Finance and Works) and tested the resulting hypotheses about common management problems on the staff of the Ministries of Transport and Education and the Department of Economic Planning and Development. The analysis identified eight common problems: (i) sector strategies, Ministry functions and structures, and managers' roles and responsibilities are not properly developed and synchronized; (ii) Ministries with regional operations are overly centralized; (iii) inadequate program performance and cost data are generated; (iv) inadequate program evaluation is carried out; (v) Ministries regularly overrun their budget allocations; (vi) Ministries suffer from inappropriate training program3; (vii) staff supervision is weak; and (viii) vertical and horizontal management communications are poor. 13. PSMR identified a number of potential solutions to each of the eight management problems and assessed them in terms of their expected benefits in addressing the problem, their risks in terms of how hard they will be to introduce given the perceived management culture in Malawi, and their requirements for technical assistance. The potential solutions will need to be tailored for each Ministry and Department. PSMR did not attempt to design specific management programs as this will require a consultative process with each client Ministry and Department over a reasonable period of time. 14. PSMR recommends that Government undertake a program to improve management performance by committing to a process involving client Ministries and Management Improvement Teams comprising local and external management experts. PSMR contains a number of possible solutions for the generic problems identified. B. MANAGEMENT OF THE PARASTATAL SECTOR 15. PSMR examined parastatal performance since the last World Bank review of the sector in 1987, noting the significant improvements in the performance of those parastatals that are under the supervision of the Department of Statutory Bodies (DSB), a Government oversight agency. Included in this group are the country's largest commercial parastatals. Several of these have benefitted from improved management performance, notably the Electricity Supply Commission and the Agricultural Development and Marketing Corporation, the latter having gone through a restructuring and privatization program. However, other zommercial parastatals, notably Malawi Railways, suffer from continued r roblems. 16. PSMR also looked at the management of Treasury Funds - Government-owned commercial or quasi-commercial operations under the supervision of the Ministry of Finance - and noted that oversight  - iv - being provided was not sufficient for some of the larger funds, such as the Post Office. PSMR recommends that some of these funds, Including the Post Office, be considered for transformation Into parastatals and placed minder DSB's supervision. Other Treasury Funds should be privatized or reviewed to determine if it would be more appropriate to place them under the oversight of their parent Ministry. 17. PSMR recommends a number of management improvements for DSB and managers of individual parastatals. DSB's legal status needs to be clarified. While DSB needs to remain part of Government, it should be able to hire staff and pay salaries at levels commensurate with the parastatal and private sectors. DSB also requires high quality staff and some will need to be recruited externally. Procedures need to be adopted that will improve the budget process for the parastatals, delegating more authority to DSB and the Boards of Directors. DSB needs to continue its plans for establishing panels to evaluate parastatal general managers and to eventually put them on perfomance-based contracts. DSB needs to think of innovative ways to meet shortages of skilled staff, such as accountants, and to develop housing schemes to promote home ownership among parastatal employees. C. STRATEGY FOR MANAGING THE CHANGE PROCESS 18. PSMR concludes with recommendations for introducing the management improvements identified in the report. The key event is for Government, particularly the SPC, to endorse the concept for change introduced herein, and to establish the capacity to continue the process that has begun. PSMR recommends that a Coordinating Change Unit (CCU) be set up in the Office of the President and Cabinet to oversee this work. It would be appropriately staffed and would report to the SPC. CCU would work with a mix of local and external consultants (to be financed by interested donors) to carry out the proposed program of management improvements for the Central Government and parastatal sector. D. PRIORITES AND ACTION PLANS 19. As can be seen in Annex 1, PSMR suggests numerous problem-solving recommendations for addressing management issues in the public sector. Of these, the main priorities suggested ire as follows: (a) Employment Controls - The recent high growth of establishment positions is alarming, especially as the growth has occurred in the non-priority sectors. Government should consider a one-year freeze on increases in established positions and concentrate on filling vacancies. Government should allow for establishment growth in the priority social sectors by reducing establishment positions in the non-priority sectors. Future growth should be limited and tied to Government's ability to increase salaries to more attractive levels. (b) Salary Increases - The Government will not be able to motivate and retain staff, especially at the middle and upper levels, unless it moves the salary structure closer to levels in the parastatal and private sectors. Government needs to consider a process and a mechanism that will permit continual evaluation of the civil service salary structure in relation to movements in the public and private sectors and provide for annual adjustment of salaries to reflect inflation and the need to compete for certain skills and professions. Particular attention should be paid to adjusting salaries at the top end of the service.  (c) Fill Vacancies and Streamline Recruitment and Promotion Processes - A prerequisite to any substantive program of management improvement is filling a substantial number of existing vacancies at middle levels and above. Vacant positions which cannot be filled within one year should be removed f;om the Establishment Register. (d) Create a Strong Capability in the Central Government to Oversee the Process of lmproving Management of the Public Sector - The Central Government needs to mimnic DSB's role in the parastatal sector and create capacity in the Office of the President and Cabinet to oversee management changes. Office needs to have ability to reward good performers and penalize bad ones. (e) Enforce DSB's role in Parastatal Sector by Clarifying its Legal Status - DSB's role has been useful in exercising oversight, though at times it suffers from excessive interference in the affairs of the parastatals. DSB's legal status needs to be defined and its ability to pay competitive salaries assured. The role of Comptroller of DSB is crucial and needs to be filled by an appropriately qualified individual. DSB's future role should be limited to establishing performance indicators, monitoring and evaluating parastatal performance, providing assistance in accounting, financial analysis and investment appraisal, helping to Implement policies that affect the sector (e.g. housing, terms and conditions of service), assisting in management development and designing and supervising a privatization policy for Government. (f) Begin Implementation of the Performance Monitoring System for Commercial Parastatals - DSB needs to recruit outside consultants to identify performance indicators for selected statutory bodies and to design carefully the contracts with General Managers that are selected by panels. (g) Transform Selected Treasury Funds into Statutory Bodies and Delegate Monitoring t DSB - Potential candidates include the Malawi Post Office. 20. PSMR's findings and recommendations have also been summarized in the following Action Plans which suggest the Department and Ministries who should be responsible or involved in carrying u.rough on the recommendations.  - vi - A. Management Issues in the Public Sector 1. Management of Public Sector Employment, Wages and Salaries Problems to be Addressed Recomnended Strategy Action Already Being Further Action Required By Whom Time Scale** Taken 1. Improve controls a. Maintain and Goverr,ment is comitted Strengthen Establishment DPMT, Treasury, OPC. Continual, aim to over nurber of staff strengthen controls to constraining the and employment control produce first employed in the on civil service overall growth of the by: authoritative civil service. established and non Establishment and limit Establishment Register -established posts. increases to key sectors (i) making the for 1992/93 budget. (Education, Health, Establishment Agrikulture) and Register an reducing the number of authoritative non-established posts. document, published arnually along with the Budget; (ii) ensuring that recruitment procedure includes a check that posts are (a) established and (b) vacant before recruitment proceeds; (iii) making forward projections (ceilings) of Establishment posts as a marpower plamning framework for each Ministry. (iv) inproving monitoring of non-Established posts. ** The "Time Scale" Indicated here and in the subsequent sections was on the assumption that Government would act quickly on this report. Virtually all the deadlines and/or time scale indicated have become unrealistic. No attempt is made to revise the original time scale.  - vii - 2. Maintain appropriate (a) Monitor trends in Existing labor force and Review data requirements NSO, EPBD, DPNT Imwediate. relationship between private sector employment statistics and scope for producing (manpower Plaming public, parastatal remuneration. are of doubtful quality relevant information Division), Ministry of and private and appear with a 2-3 more rapidly. Labor. Treasury. remuneration. year lag. (b) Make adjustments Goverment has review PFP is predicated on annually, so as to committee for salary maintenance of real limit fluctuations issues, but is 1987/88 salary levels; in real earnings. constrained by fiscal steps towards this targets agreed under the should not be adjustment program. inconsistent with overall financial framework. Need: ( a) to determine Treasury, EP&D. Immediate. appropriate aggregate target for wages and salaries in 1991192. (ii) to determine Treasury, EP&D, DPNT, Ismediate. allocation of Ministry of Labor. increase to maintain appropriate differentials and incentives, etc. 3. Maintain an (a) Keep compression DPMT, EP&D. Continual. efficient and ratios and equitable Government incentives for salary structure. scarce skills under regular review. (b) Move from Government has accepted Adopt detailed OPC, OPxT. Immediate subsidized policy in principle. implementation strategy, Government housing Recent Housing Sector including timetable for towards study will help in introduction of housing incorporating devising a phased allowance, etc. housing factor in program of basic pay, with implementation. housing allowance as Interim mechanism.  - viii - Problem to be Addressed Recofmended Strategy Action Already Being Further Action Required By Whom Time Scale Taken _ 4. Strengthen capacity (a) Prepare a detailed DEVPOL includes Assign professional OPC, involving EP&D. 12-18 moniths. for timely analysis Government policy appropriate but limited staff from relevant DPNT, OSB, Ministry of of remuneration statement on pay and policy statements. ministries to do staff Labor, Treasury. issues. related issues to High-level Government work for the pay cover: cormittee on pay issues comuittee In drafting exists. policy statement, (i) affordability beginning with a series and balance of position papers on between personal the main subsidiary emoluments and Issues. other charges; (ii) minimun wage and cost of living criteria; (iii) appropriate relationship between pubtic, parartatal and private sectors; (Iv) scarce skills and the economic efficiency of the pay structure; (v) balance between wages/salaries and other benefits. (b) Haintain capacity EP&D1s existing modet Recreate an appropriate EP&D, In consultation As soon as possible. for rapid analysis accidentally destroyed. model. with DPMT and Treasury. of budgetary implications of differentiated pay adlustmwnts. (c) Incltnde review of Economic Report Is well Draft sultable EPMD. Start wlth 1991/92 pay and cost of established as* additional section. Economic Report. living trends in commentary on economic annual Economic developments in relation Report and Budget to Gove'rnent policy, Speech. foltowing a standard format from year to I year.  - ix - 2. Management of Comnon Services Problems to be addressed RecoTmnded Strategy Action atready being Further Action Taken By Whom Time Scale 1. Excessive Staff Adopt guidelines on re- Draft Schemes of Service (a) Issue gereral SPC/DPNT By end 1991 Turnover posting and promotion to (Career Paths) should guidelines on minimize inter- spell out entry and tenure and ministerial transfers promotion requirements. promotion, (guidelines to require, consistent with inter alia, advance those incorporated consultation between in the Schemes of responsible officer and Service. |_______________________ controlling officer) (b) Ensure that Schemes DPNT Ongoing (set targets for of Service spell comptetion of all Cormon out minimum Service Career Paths) expected tenure in a given post and the expectation that, as far as possible, promotion should occur within the same Ministry. Improve personnel record DPHT has project under (a) Review progress of DPH1, in consultation Immediate review. keeping and information way to computerize this effort, with other Ministries Complete computerization systems central personnel reinforce if by mid-1992 records necessary (b) Review and improve DPHT, Heads of Commn 1991-92 records kept by Service Common Service, and seek consistency with central computerized ________________________ _ -system.. Encourage guidance DPMT to issue guidelines DPMT ImmediateJcontinuing rather than transfer as and arrange training first reaction to programs on this aspect difficulties of management For each Comnon Service Heads of each Common Heads of Common Services All Common Services to review balance of senior Service to consider this and DPMT in consultation have posts (promotion aspect in drafting with user Ministries development/training opportunities) between medium term development plans within 2 years core Ministry and program for the Service satellites (as part of the same exercise to prepare training plans - see below). Consultation between Heads of Common Services in considering Establishment requests annualt_ Minimize disruptive Various-initiatives to Prepare a long term DPHT, Heads of Common All Common Services to effects of training by improve manpower training plan for each Services have long term training longer horizon for planning capacity have Common Service plans within 2 years training plans been undertaken (e.g. ____ ___ ___ ___ ___ ___ _ __ ___ ___ ___ ___ ___ ___ NATCAP) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _  2. Excessive Vacancies Streamline recruitment HIH and Management (a) Review OPC, DPMT, PSC Immediate process by eliminating Services Division of recormendations urwecessary steps and DPMT have made allowing parallel rather recommendations along (b) Implement as many OPC, DPHT, PSC By end-1991 than serial procedures these lines, which as found where possible envisage suibstantial appropriate reduction in average recruitment period (c) monitor effects on PSC, DPMT (NSD) Thereafter _______________________ recruitment times l Investigate measures to HIM team has made Review and act upon HIM OPC, OPMT, etc. 1991 reduce time for recomnendations that recommendations promotion would reduce considerably the time required for the promotion process Revive use of DPHIT System exists in Identify training Heads of Common Budget for training pool training pool to allow principle, but pool is vacancies at least two Services, DPMT, Treasury in 1992/93 and annually training vacancies to be not funded in practice years ahead (as outcome and line Ministries thereafter covered because of inability to of training plans with anticipate "training longer horizon) vacancies" soon enough Review bonding Review to consider OPMT, MOEC, Ministry of As soon as possible. regulations and either options. Justice. enforce or abandon bonding. Investigate measures to HIM team has made Review and act upon HIM OPC, DPHT, etc. 1991. reduce time for recommendations that recommendations. promotion would reduce considerably the time required for the promotion process. 3. Role and functions Schemes of Service Preparation of Career Continue, and give DPMT, Heads of Common Ongoing/immediate. of Common services (Career Paths) to show Paths is under way, with priority to Common Services. are insufficiently overall duties of each TA from ODA in DPMT. Service career paths, understood. cadre as well as entry, check that all draft training and promotion Common Service career requirements for (inter paths include explicit alia) all Common section spelling out the Services. respective roles of responsible officer and controlling officer. . Better Job descriptions New Job description form Continue improvement of OPHT, PSC all Ongoing. related to Schemes of has been introduced and job descriptions. Ministries. Service. is required in support of all applications for new posts, recr.itments, training, etc. Induction training for Occurs only Each Common Service to Heads of Comron As soon as possible. new recruits. sporadically. work out appropriate services, DPMT. induction program.  - xi - Procedures manials. Some exist, but few are Review status, update Heads of Comon As soon as possible. up-to-date. and add as necessary. Services, DPMT. Preparation of a manual is a good opportunity to review and improve the systems and procedures l _______________________ ________________________ it describes. __________________td s r b s Professional seminars, Varies among Common Review status, consult Heads of Comm-n As soon as possible. etc. within the cadre. Services. within the cadres, adopt Services. and maintain appropriate ___ ___ ___ ___ ___ __ __ ___ ___ ____ _ _ programs. _ Inprove performance The principle of an open Progressive Introduction DPMT etc. ongoing. appraisal system. appraisal system has of the new system, been accepted by begirming with senior Government, forms staff. Careful designed and a training monitoring of progress. programs (by MIM) prepared.  - xii - 3. Management of Ministries and Departments Problems to be Addressed Recommended Strategy Action ATready Being Further Action Required By Whom Time scale Government Ministries and - Establish a capacity Several Ministries and - Review findings and - Government (SPC and Following receipt of Departments have been found to coordinate Departments have management recomnendations in PSs). PSHR Report. to share a conmon set of ministerial action improvement programs In PSMR Report; problems that affect the plans and to place or under study. establish priorities efficiency and effectiveness disseminate Examples: and action plans; of their operations. These experience to other agree on problems can be grouped into parts of Government. The Ministry of Vorks implemeitation four areas: is undergoing an mechanism and need - Treat problems as intensive multi-year for external (i) decision-making - too Interrelated and not management assistance. many decisions taken independent. Improvement program. at the top and lack of clarity over - Develop individual - The Ministry of responsibility for ministerial action Finance is decisions; plans with full formulating a participation of development plan to (if) evaluation, ministeri6l staff; strengthen its major planning and ensure that plans are operations. budgeting - lack based on realiitic of ability to assessment of what The Ministry of Health deliver programs ministry can is Implementing an within allocated accomplish based on action plan to improve resources; present capacity and management comnnica- existing obligations. tions and implement (iiI) human resource decentralization development - - Make maximum use of activities. weak training and local resources such personnel as the Management - EP&D is developing a management Services Division in program to strengthen systems; and DPltT and locally its internal based management communications. (iv) comnmmications - consultants. poor vertical and - DPHT has programs in horizontal place to develop communications. schemes of service and undertake job inspections. The Governnent has established an Implementation Committee to follow up on the Herbacq Report and to address continuing Issues affecting management of the civil service. Government established the latlai Institute of Management to provide in- service management training and consulting advice to Government and the private sector. MIM is providing management consultancies of MOD, DSB, DPHT and other Government bodies.  - xiii - B. _anagement of Parastatals Problems to be addressed Recommended Strategy Action already being Further Action Required By Uhom Time Scale taken 1. Need to clarify Defines its legal Discussions under way Urite memo which - OPC staff or Process to be coopleted DSB's mandate and status, objectives, within Goverrment. presents various consultant by end 1991 strengthen the authority and legal options and capacity. responsibilities. clearly defires DSB's role - Choose most - OPC appropriate option - Urite draft legal - OPC, Ministry of statute Justice, consultant - Discuss and adopt - Goverrvnent Recruit capable manager Search for comptroller - Delegate - OPC Immediate under way responsibility for finding suitable candidate to an individual or search committee - Seek donor funding, - OPC part,cularly if expatriate - Interview and setect - SPC I _______________________ candidate Recruit additional None Identify funding sources OPC and DSB management Effort to begin as soon technical staff and recruit, preferably as possible Malawian, experts (short and long term) in accounting, financial systems, housing scheme development, transport fleet management. management development, economic project appraisal. computerized MIS systems design and ________________________ I_______________________ maintenance I Increase Incentives to Discussion on legal Adopt legal status which Goverrnent As soon as legal status retain highly qualified status affect this issue allows market-retated adopted ______________________ _ Istaff pay  - xiv - 2. Need to improve Board members should Some parastata(s Issue directive which - OPC Before begimfng of next efficiency of receive budget documents managers do need describes the various year's budget process budgetary process from each parastatat's relevant budget stages of the for Statutory Bodies management no later than documents sufficiently budgetary 10 days before the Board In advance of meeting process, provide meeting. guidelines on role of members and sets deadlines. - Delegate DSB to - OPC monitor comptiance l _____________________ with the directive EP&D and Finance A few parastatals - Ask ministries to OPC By mid 1991 Ministries to designate already have high designate specific specific officers and ranking ministry senior level officers alternates (minimum P7 representatives on the and alternates to level) to serve as their Board and Budget follow each representatives in Committee who attend parastatal's Boards of Directors and meetings regularly activities and Budget Conmittees attend Board and Budget meetings. - Send tist to DSB 3. Effectiveness of Choose Board members who Improvement in quality - Review attendance and Boards of Directors can contribute technical of parastatal Boards of participation of expertise, assess Directors since July Board members. financial plans and 1990 performance, represent . Appoint replacements comiunity interests, if necossary etc. . Authorize Board of Improvement in Board - Write memo that OPC Directors to take quality is necessary delineates which decisions on clearly step before enhancing specific decisions defined issues its authority remain with government and delegate rest to Board of Directors - Issue directive _ Designate three years Board members are - Issue directive (and OPC -Begin staffing by terms for Board members currently appointed for modify statutes if reptacing non- and stagger terms to two years terms which necessary) participating Board ensure continuity are not staggered members in July 1991  -xv- Problems to be addressed Recommended Strategy Action already being Further Act. n Required By Whom Time Scale taken 4. Quality and Panel to interview Panel selected and Schedule interviews of OSB After training has been authority of general managers and training to begin general managers cocpleted managers vary evaluate their February 1991 considerably among management skills parastatals Extend strategy to next Strategy adopted Train panel members to HIM subsequent to GM level of management evaluate next level of interviews management Adopt performance Select general managers - Hire short-term DSB Performance contracts contract system which and refine performance experts to design should be completed by links compensation more irdicators so that enterprise-specific the time GMs are closely to performance performance is fairly performance selected end sets a three year judged and correct indications renewable term incentives are given write contracts and monitor the achievement of targets 5. Personnel Management Difficulty Extend concept of System to be introduced Choose pilot project OPC/DSB Design system at same attracting and linking bonuses to at GM level parastatals and hire time as performance retaining highly achievement of targets short-term consuttant to criteria scheme for GM skilled staff to selected staff. propose systems for each. Implement decision taken Shortage of Smaller commercial Tax-free allowance Investigate concept DSB Within six months qualified parastatals share introduced for further as well as accountants in accountants engaged by accountants potential funding Malawi DSB source. Take decision and hire accountant Lengthy process Authorize General Quality of General issue directive which OPC By end 1991 required to fire managers to immediately Managers and Board streamline procedures, employees guilty suspend employees members is being in accordance with labor of theft or fraud beneath them; authorize improved prior to regulations Board to fire these increasing their individuals after proper authority procedures have been followed and inquiries I Wade  - xvi - Difficulty coTpeting - Introduce staff home DSB has produced a study with private sector's ownship program on a of a proposed home compensation packages pilot project basis ownership scheme mid and higher levels, significant - Trarnsfer the function time and resources of providing loans being spent to manage for rajor asset housing and loans, purchases - car, and sizeable amount furniture, etc. - to of assets held up commercial banks in housing and loans. 6. Treasury Funds - Transform selected Transformation of Malawi - Decision to be taken - Government - As soon as possible commercial Treasury P&T into a statutory on Malawi P&T. Donor Treasury Fund funds into statutory body is under discussion assistance to be framework is not bodies and delegate identified for sufficiently monitoring to DSB. rehabilitation plan rigorous for large commercial - Examine the case for - Memo to be written - DSB - vithin months operations transforming Central analyzing Goverrunent Stores and advantage/dis- Central Medical advantage of Stores into statutory converting bodies. rent of commercial _ Treasury Funds listed l  - xvii - Problems to be addressed Reccomended Strategy Action already being Further Action Required By lhom Time Scale taken Poor management/ Sell to farmers who Under discussion for Egg Decision to be taken Goverrnent Not urgent profitability of Egg apply products or other Marketing Fund in Marketing Funds in private sector Blantyre Blantyre, Lilongwe interested parties and Mzuzu and the Smaliholder Project. Not of strategic imqportance to the country Inadequate Smaliholder Agricultural Decision taken Implementation to begin supervision of Credit Authority to agricultural credit assute responsibility Treasury Funds for agricultural credit Treasury Funds Work capacity of Govermnent to review None Government to analyze OPC Before next budget unit in Treasury to whether remaining institutional framework process begins supervise Treasury Treasury Funds should be for remaining Treasury Funds internally supervised by Funds their parent ministries or remain within the purview of the Treasury |- ___________________ Fund Unit Government capital Sell Nalawi Book Service None - Take decision - Goverrnent Multi-year process is directlyi and Malawi Dairy indirectly tied up Industries (wholly or - Devise scheme whereby - DSB/consultants to In commercial enter- partially) Government retains investigate method prises no longer of regulatory authority, and present options strategic importance when appropriate that would be more (e.g. milk prices) efficiently managed even after sale if sold - Present options to l _ _ _ __ _ _ __ _ _ __ _ __ _ _ __ _ _ __ _ _ __ _ __ _ _ __ _ _ __ _ _ __ G vrn et__ _ _ __ _ _ __ _ _ __ _ _ __ _ _ __ _ _ __ _ __Goverm ent  - xviii - Completion of ADIARC - Sell ADOARC'S None - Retain consultant, if OPC Not urgent. Within next privatization holdings in necessary to specify two years program to enable it Cold Storage Company; options and action to focus on its cede Ualaui Tea plan primary objectives Factor, to Small- holder Tea Authority; Investigate potential Discussions under way Take decision options for holding company of ADNARC shares (e.g. debt/equity swap) HDC is not - Strengthen management None Decision to be taken - Government - Imnediate fulfilling its and project appraisal manrate of staff capacity investigating in new comipanies HDC to sell its - Decision to be taken - Sovernment - After _magement and shares in mature staff are reinforced I companies _ _  CHAPTER 1 RAK002ANDINIBQTlR A. OVERVIEW 1.1 The Public Sector Management Review (PSMR) arose out of the Government of Malawi's continuing interest in improving performance of the public sector. The Government has experienced many previous management studies and two of the most recent ones -- the 1985 Report of the Malawi Civil Service Commission and the 1987 World Bank Report on Parastatal Restructuring -- have resulted in significant changes. Other studies, however, particularly several management improvement studies of individual ministries, did not lead to any meaningful improvements. 1.2 With this background, the Secretary to the President and Cabinet - SPC, (head of the civil service and coordinator of the Government's daily operations), expressed interest in a review that focused on selected issues rather than attempted encyclopedic coverage, and involved government officials along with external experts. The objective was twofold: first, to identify a manageable number of issues that could be tackleJ within a reasonable time frame; and second, to evolve a process that could move easily from analysis to implementation and which could serve as a prototype for addressing subsequent public sector management issues. 1.3 It was agreed that the PSMR would be restricted to issues affecting the Central Government (i.e. the core and sector ministries; excluding the legislative and judicial branches, the police and defence establishments and the local government structures) and the parastatal sector. The Parastatal Sector organizations addressed by the PSMR are the twenty-six statutory bodies and four state-owned companies that are supervised by the Department of Statutory Bodies, and 54 Treasury Funds which are under the supervision of the Ministry of Finance. These are described in Section A of Chapter 3 and listed in Annex 3-1 of this report. The ministries and departments comprising the areas of Central Government that are covered by the PSMR are listed below: Ministries Office of President and Cabinet Ministry of Finance Ministry of Health Ministry of Justice Ministry of Education and Culture Ministry of External Affairs Ministry of Works Ministry of Local Government Ministry of Community Service Ministry of Trade and Industry Ministry of Labor Ministry of Transport and Communication Ministry of Forestry and Natural Resources Ministry of Agriculture Ministry of Energy and Mining Ministry of Information and Tourism  -2 - Departments Department of Housing and Physical Planning Department of Economic Planning and Development Department of Statutory Bodies Printing and Stationery Office Chitukuko Cha A Mai -CCAM Regional Administrator (North) Regional Administrator (South) Regional Administrator (Centre) National Research Council of Malawi Public Service Commission Post and Telecommunications Personnel Management and Training National Statistical Office Youth and Malawi Young Pioneers. 1.4 It was further decided to look at different types of issues affecting performance of public sector agencies. One set of issues would be cross-cutting such as remuneration and personnel management policies, affecting all government operations and over which no one ministry or agency had much control. The other set of issues would be those inhibiting performance of individual ministries or agencies. Th- Government was interested in determining whether there were a common set of problems af'acting all ministries which might lend themselves to a set of common solutions. Finally it was decided to examine the parastatal sector to see how the sector had performed over the last five years, to recommend areas for improvement and to assess whether there were any appropriate lessons from the experiences of the parastatal seccor that could be applied to the management of sector and core ministries and vice versa. 1.5 PSMR contains four chapters. The remainder of this chapter describes PSMR's approach and methodology and provides a summary of Malawi's recent economic performance. Chapter two r,.views management issues affecting performance of the Central Government. The performance of the parastatal sector is addressed in chapter three. Chapter four corcludes with PSMR's findings and offers a strategy for managing the change proc-ss. Annex I contains a list of PSMR's recommendations. B. APPROACH 1.6 In approaching PSMR, the Government (SPC and advisers) requested that an effort be made to include local perspective in the review process. It was Government's belief that some of the previous efforts to approach public sector management improvements had failed because of lack of appreciation of Malawi's cultural and political heritage. The review team attempted to meet this request by including Malawian rmembers (consultants from the Malawi Institute of Management), and by testing PSMR's hypothesis, preliminary findings and conclusions on numerous Malawian officials, including two public meetings with the SPC and his Principal Secretaries.  - 3 - C. RECENT ECONOMIC PERFORMANCE 1/ 1.7 As a landlocked African country with more than eight million people, Malawi suffered through its share of adversities in the 1980s. Besides an international economic climate that was not particularly favorable for its agriculture-based economy, the country was buffeted by the civil strife in neighboring Mozambique, which not only caused the closure of its traditional trade routes to the sea, but also led to a large influx of displaced persons that significantly increased the burden on Government's limited services and infrastructure. Even without these shocks Malawi would be a poor country, though its current per capita income of $248 would probably be higher. 1.8 Beginning in the early 1980s, Malawi responded with a series of stabilization and structural adjustmnent programs. Certain policy responses, including expanded fiscal deficits and the imposition of import controls, compounded the difficulties and discouraged private sector output and confidence. The years of 1986 and 1987 were a time of crisis in which per capita GDP fell, current account balances deteriorated, foreign reserves declined and fiscal imbalances increased. In 1988, Government introduced a policy of strict financial discipline, with the objective of encouraging a shift of resources from the Government to the private sector as the focal point of economic growth. Structural policies included liberalizing the import regime and introducing financial, fiscal and parastatal reforms. The economy has responded to these measures with real GDP growth increasing from 1.1 percent in 1986 to 4.8 percent in 1990, and 7.8% in 1991. 1.9 The Government's development strategy until recently has concentrated resources on developing iwtional infrastructure and a highly productive agricultural estate sector and, while this has generaliy produced impressive results in terms of exports, it has been at the expense of the social sectors. To address problems of widespread poverty and food insecurity, of high population growth and infant mortality rates and of illiteracy and low educational achievements, the Govermnent has been increasing the share of budget expenditures on human infrastructure. Expenditure on social services increased from 19 percent of the recurrent budget in 1985/86 to 26 percent in 1989/90, and from 15 percent to 23 percent of the development budget over the same period. 1.10 The Government's financial position has continued to improve since 1986/87, when the deficit reached 13 percent of GDP. The figure has come down to 6.6 percent in 1989/90, and is expected to improve further to 5.8 percent in 1990/91. The fiscal improvement has resulted primarily from reduced recurrent expenditure. From a peak of 24 percent of GDP in 1986/87, recurrent expenditure was 20 percent in 1989/90, and is projected to fall further to 18.3 percent in 1990/91. A primary contributor to the decline was constraint on the growth of wages and salaries. I/ Information is from Malawi - Recent Economic Developments, IMF, February 1991; Malawi - Public Expenditure Review, World Bank, April 1990; and Malawi - Growth Through Povertv Reduction, World Bank, March 1990.  -4- CHAPTER 2 MANAGEMENT ISSUES IN THE CENTRAL GOVERNMENT 2.1 This chapter will examine three distinct aspects affectiri.; management of the Central Government in Malawi. First it will review management of civil service employment and wages, providing data on trends in both areas and on the competitiveness of civil service salaries compared with those in the parastatal and private sectors. Second, it will review management of the Common Services, examining issues affecting performance of a specific sub-set of civil servants - those that belong to Common Services and are managed by the heads of their services rather than by the Ministries in which they work. Third, it will look at management in Government Ministries, identifying issues and suggesting ways of improving performance. A. MANAGEMENT OF CIVIL SERVICE EMPLOYMENT AND WAGES 2/ (i) Employment 2.2 Historically, Malawi has been known for its conservative approach to employment in the public sector, particularly in comparison with many other African countries where, until recently, double digit annual growth rates were not uncommon. The overall annual growth of established positions from 1979/80 (36,775) to 1989/90 (58,580) was 4.8 percent. 2.3 The 1990 Public Expenditure Review Report (PER) notes the discrepancy between figures reported in the Establishment Estimates appended to the budget and those based on ledgers maintained in the Department of Personnel Management and Training (DPMT), in the Office of the President and Cabinet. These figures were updated by the mission as noted in Table 2.1, and indicate that the discrepancy remains, although it appears to have stabilized. According to both sets of figures, the number of established positions increased in the most recent two year period by 13-14 percent. Table 2.1: Nuwber and Increase in Civil Service Established Positions, 1980/81-1987/88 Nuimer of EstabLished Percentage of Increase Positions DPNT gI Budget t/ DPHT Budget 1960/61 U.274 39,824 - 1981/82 45.144 43,345 1.9X 1982/83 46,380 45,333 2.9X 1983/84 47,977 - 3.41 1984/85 48.178 - 0.04X 1985/86 48,267 46,666 0.01X - 1986/87 51.786 49,673 7.3X 6.4X 1987/88 57,108 51,699 10.3X 4.1Z 1988/89 60.245 54,256 5.51 4.91 1989/9 65, A0 58,580 8.7X 8.0X a/ Source: DPNT W/ Source: Table of Civil Service Establishment, various years. 2V Civil service employment refers to employees in the civil service both in established and -xon- established positions. It does not include parastatal employees (discussed in the next chapter) nor employees of local govermments.  - - 2.4 Some of this increase can be explained by the Government's decision to limit the growth of non-established posts, which have averaged between 20,000 and 25,000 over the past few years, and to transfer many of these into established positions. As will be seen in the next section, the wage bill as a percentage of non-debt recurrent expenditure has been modest over the last few years except in those years where there have been sizeable pay increases, thus indicating some trade-offs between established and non-established positions. Information is sketchy on non-established positions (22,592 were reported by DPMT in 1986/87), and greater effort is required to track the number of workers in these positions.3/ Nonetheless, the increase in growth of established positions is of growing concern. 2.5 Also of concern is the change in the composition of the civil service establishment. As can been seen in Table 2.2, growth in employment in the last two years has been in the "non-priority establishment" (i.e., categories other than education, health and agriculture. These categories have had double digit growth compared with declines in establishment positions in the Ministry of Works and only modest increases in Health and Agriculture. Table 2.2: Nataf -- Civit Service Establisimnt 1985/86 - 1989/90 Totat of WHich: Year Estabtishment Agriculture Ecication Health Works Other (a) (a) 1985/86 46666 5814 15219 4897 1881 18855 1986/87 49673 6431 16792 4897 2186 19367 1967/88 51699 7036 16965 4771 2227 20700 198B/89 54256 7112 16965 4771 2157 23251 1989/90 58580 7275 18646 4820 1806 262S3 Percentage shares: 1985/86 100.0% 12.5X 32.6X 10.5Z 4.01 40.4X 1986/87 100.01 12.91 33.81 9.91 4.41 39.01 1987/8B 100.0% 13.61 32.8Z 9.21 4.31 40.01 1988/89 100.01 13.11 31.3X 8.81 4.01 42.91 1989/90 100.01 12.4X 31.51 8.21 3.1X 44.8X Percentage growth p.a.: 1985/86(b) 1.01 5.?$ 0.51 -0.1X 2.0X 0.2Z 1986/87 6.41 10.6Z 10.31 0.01 16.21 2.71 1987/88 4.1Z 9.41 1.01 -2.6X 1.91 6.91 1988/89 4.91 1.1X 0.0% 0.01 -3.11 12.31 1989/90 8.01 2.31 8.71 1.01 16.3X 12.81 Average growth: 579/80-889/90 4.81 9.6Z 2.51 7.51 0.81 5.5X Notes: (a) Decrease in 1989/90 presunbly reflects transfer of Suppties to ministry of Finance. (b) Average arnuat growth rate between 1982/83 and 1985/86. Source: Tabte of Civit Service Establishment, Budget Estimates, various years. 3/ Most non-establishment workers are on daily or monthly contracts and work for the minimum wage and do not receive any benefits. They are generally unskilled laborers and many are employed by the Ministries of Agriculture and Works doing seasonal jobs.  - 6- 2.6 It is evident that Government is encountering difficulty in managing the overall growth of the civil service, especially growth in non-priority areas. The Policy Framework Paper (PFP) noted Government's intention to limit overall growth in the civil service to 1-2 percent per annum, with emphasis going to health, education and agriculture.4/ The Government could successfully tighten up employment practices by developing and then using the Establishment Register as the core document both for budgeting and for authorizing recruitment of new positions. At present DPMT keeps a ledger of what it believes to be the authorized posts for each Ministry/department, but this is not widely circulated and it is not authoritative. As already noted, DPMT's figures do not agree with those appended by Treasury to the Budget Estimates. Treasury and DPMT should reconcile their differences and agree on one set of numbers, to be published as the Establishment Register and updated arniually as part of the budget routine. The annual process of producing the Establishment Register would link manpower and financial budgeting in a desirable way. Recommendations 2.7 It is recommended that the Government improve establishment and employment control by: * Freezing the creation of new establishment positions while it is reviewing the Establishment Register and reconciling the number of existing positions between Treasury and DPMT; future growth should be constrained - probably in the range of 1-2 percent - and concentrated on the priority social sectors, so that emphasis can be placed on improving wages; * making the Establishment Register an authoritative document, published annually along with the Budget; * ensuring that the recruitment procedure includes a check that posts are (a) established and (b) vacant before recruitment proceeds; * making forward projections (ceilings) of Establishment posts as a manpower planning framework fur each Ministry; and * improving monitoring of non-Established temporary and industrial class posts and including a report of their estimated numbers and/or budget allocations as a companion document to the annual Establishment Register. CiH) Wages 2.8 Wages in the context of this report refer to the daily pay that workers in non-established posts receive. Salaries refer to the annual remuneration received by civil servants in established positions. In addition, civil servants are also eligible for non-cash or indirect benefits such as housing. This section of the report will focus on (i) the role of indirect benefits, (ii) wage and salary movements as measured by several indices, including the cost of living; (iii) the competitiveness of civil service salaries in comparison with those in the parastatal and private sector; and (iv) policy guidelines to be considered in formulating Government wage and salary policy. 4/ Policy Framework Paper 1989/90-1991/92, June 1990.  - 7 - 2.9 Indirect Benefits: Indirect benefits play an important role in the total compensation received by civil servants. Housing is the most significant indirect benefit. A senior official living in a government house in Lilongwe or Blantyre would pay 10-12.5 percent (depending on whether it was furnished) of monthly salary in rental charges, or MK 150-200/month. A similar house on the open market would rent for about MK 1800-2500/month (equal to or greater than the civil servant's nmonthly salary). Given the limited stock, government housing is available to only one-third of the civil service and Government provides no housing allowance or other benefit for civil servants that are housed privately, creating problems in terms of equity of the overall benefit package. The Government is actively addressing this problem with the help of UNDP, the World Bank and other donors. The thrust of the effort is to devise a program that would enable civil servants to buy government houses they occupy or, if they are privately housed, to obtain mortgage funds to buy from the private sector. PSMR supports the Government's decision to gradually move out of the housing business (except for specific requirements, such as the need to house government officials posted in remote locations), and to establish a housing benefit that is equitable, transparent and available to all. 2.10 The second most significant indirect benefit is training, both local and foreign. Although training is intended to serve a useful purpose, increasingly it has become, in the eyes of the Malawian civil servant, an "income generating activity." Foreign training has always offered opportunities for saving foreign exchange while on extended study tours, but it is only recently that local training has provided a means of enhancing income. Government's decision in September 1990 to establish high subsistence allowances for Government officials attending donor sponsored conferencer . seminars and workshops provided the impetus. With rates ranging from MK 130-156/day if accommodation is not provided, civil servants can earn the equivalent of 20 percent or more of their salaries from a month long course (assuming that they stay with relatives or friends). While some donors refuse to pay the specified subsistence allowances, others acknowledge these allowances to be an acceptable way of providing income supplements. Government's subsistence policy creates problems for local training institutions, like the Malawi Institute of Management, which discover that civil servants will not attend its courses unless it matches the subsistence rates donors are prepared to pay. The World Bank has addressed these and other issues in its Training Sector Study (Report No. 8671, June 1990). The report addresses a range of issues related to improving the efficiency of the training sector. However, the issue of training as an income generating activity will not be fully resolved until Government effectively addresses the problem of declining real wages of civil servants. 2.11 Trends in Civil Service Salaries:5/ Various indices are useful when examining civil service wages. First, there is the share of wages and salaries in the recurrent budget. Table 2.3 indicates the position is as follows: s/ See footnote 1 of Executive Summary on the significant pay increases granted to civil servants in April and May 1992.  - 8 - Table 2.3: PubLic Expenditure an Wages and SaLarfes if Vages and Salaries as Wages and Salaries as Percentage of Won-debt Percentage of Recurrent Expenditure Gross Consuiption 1981/82 32.0 38.1 198Z/83 33.8 39.8 1983/84 32.9 41.? 1984/85 33.0 39.8 1985/86 31.5 40.3 1986/87 32.3 38.8 1987/88 37.4 44.6 1988/89 32.6 38.0 1989/90 36.5 44.9 1990/91 31.8 38.5 Source: Nalawi Goverruent, Economic Report, 1989-1990. 2.12 In each column, there are significant increases in the ratio in 1987/88 and 1989/90. These presumably reflect the short-term effects of the two main salary increases during the 1980s. These ratios indicate that wages and salaries have tended to stabilize at around 30-35 percent of non-debt recurrent expenditure and 4045 percent of gross consumption, and have not been increasing as a proportion of total expenditure. The ratios indicate that the effects of budget stringency applied during the adjustment programs in the 1980s have been felt on both the wage and non-wage components of the recurrent budget. In many African countries, Government's have allowed salaries to increase as a percentage of recurrent expenditures during times of adjustment, reducing the funds available for operational expenses and leading to a severe curtailment of Government activity. Malawi has avoided this pitfall, although in doing so, since it did not reduce employment, it has curtailed the real value of salaries. 2.13 One indicator of the health of the civil service pay structure is the compression ratio, the ratio between the highest and lowest paid civil servants. This ratio is based solely on salaries, since indirect benefits are difficult to quantify. Consequently, the ratio tends to have a lower bias than would be the case if indirect benefits -- which tend to be larger the higher one is in the civil service - - were included. In many African countries, the ratio is less than 10. As noted in Table 2.4, the compression ratio is significantly higher in Malawi, and has been so since at least 1974/75. The 1989 pay increase, which averaged 20 percent, increased lower level salaries by up to 85 percent and higher level salaries by 12 percent, thus reducing the compression ratio from 48 to 30. 6/ Annex 2-1 provides data on the Central Government Recurrent Expenditures from 1981/82 to 1990/91. Note that Gross Consumption used in this table is a sub-category of Central Govermment Expenditure, netting out transfers. Annex 2-1 also provides information from which this table was derived.  -9 - Table 2.4: Selected Goverment Salaries Grade 1974/75 1979/80 1986/87 1989/90 Superscate and Acdin. SI/Pi High 5937 10368 19104 21696 Executive and Tech. B3 Low 1038 1371 2064 3180 BI High 3375 4455 7704 8736 Clerical wnd TA C2 Lou 222 294 576 720 Cl High 1311 1794 3636 4224 Nursing U6 Low 1038 1371 2064 3180 Ml High 4053 5868 9048 10968 Teaching ETI Low 2145 3750 5688 7720 ETI High 2709 4455 7704 8736 T5 Low 222 294 540 720 TS High 276 363 924 1488 Nessseiers SCIV Low 150 225 396 732 SCI High 363 546 1680 2040 Coqpressfon Ratio 40 46 48 30 Source: Civil Service salaries frm DPMT. 2.14 The compression ratio itself does not indicate whether civil service salaries are adequate in terms of providing a living wage nor attractive in comparison with parastatal and private sector salaries. In the case of Malawi, the ratio indicates that within the structure there is significant distance between the lowest paid and highest paid civil servants, allowing for increasing levels of responsibility, to be rewarded by appropriately higher salaries. 2.15 Table 2.5 provides ratios of government salaries to the urban minimum wage at four different periods between 1974/75 and 1989/90. The table indicates that salaries at the lowest level are above the urban minimum wage, however salaries at all levels have been declining in terms of the urban minimum wage since 1979/80. While all suffer when inflation is high and wage adjustments are infrequent, those in the lower scales suffer disproportionately more given that their salaries are so close to urban minimum wage.  - 10 - Tabte 2.5: Ratio of Governoent Salaries to Urban Ninim Wage 6rade 1974/75 1979/80 1986/87 1989/90 Superscate and Admin. SI/Pi High 59.4 103.7 68.8 40.0 Executive and Tech. B3 Low 10.4 13.7 7.4 5.9 Bi High 33.8 44.6 27.8 16.1 ClericaL and TA C2 Lou 2.2 2.9 2.1 1.3 Cl High 13.1 17.9 13.1 7.8 Nursing M6 Lou 10.4 13.7 7.4 5.9 Nl High 40.5 58.7 32.6 20.2 Teaching ETI Lou 21.5 37.5 20.5 14.2 ETI High 27.1 44.6 27.8 16.1 T5 Low 2.2 2.9 1.9 1.3 T5 High 2.8 3.6 3.3 2.7 Nessengers SCIV Low 1.5 2.3 1.4 1.3 SCI High 3.6 5.5 6.1 3.8 Urban Nini.m Wage 1.0 1.0 1.0 1.0 Minimum Wage - Urban Daily Wage x 250 (from Naawd Growth Through Poverty, Tabte 5.03) Source: Civit Service sataries from DPfT. 2.16 It is also useful to look at the performance of government salaries in real terms in recent years. Table 2.6 provides information on salary movements since 1974/75, with 1986/87 set as the base year (equals 100), as this was the year salaries were significantly adjusted in response to the recommendations of the Civil Service Review Commission. Salaries have been deflated by the Blantyre Low Income Index to 1980, and by the Composite Price Index thereafter. 'rhe table indicates that salaries in real terms have declined significantly since 1986/87, amounting in 1990/91 to only 52 percent of their value at the top levels of the civil service (SI/Pl). The decline has not been quite so drastic at the lower end of the scale, since the 1989/90 nominal increase was biased towards low earners. At the bottom of the messenger scale (SCIV), the 1990/91 salary was worth 86 percent of its 1986/87 level.  - 11 - Table 2.6: Natadi - Civit Service Salaries by Category 1974/5-199019 (Indlex) (1986/87=100; deflated by Blantyre Lou Incinc Index to 1980, ard by Composite Price Index thereefter) 74/75 75/76 76/77 77/ 73/79 79/80 80/81 81/82 82/83 83/84 84/85 85/86 66/87 87/88 88/89 89/90 90/91 Superscale and ftden. SI/PI Loi 118 102 159 153 141 126 122 111 106 94 84 73 100 79 60 58 52 SIUPI High 111 96 161 155 143 128 125 126 121 107 96 84 100 79 60 59 53 S8PS Low 179 154 198 190 175 158 153 139 138 122 110 96 100 79 60 58 52 S8/Pe High 177 153 204 195 180 162 157 150 141 124 112 97 100 79 60 60 54 Admin. & Professional Al LOw 165 142 195 187 172 155 150 136 138 121 109 95 100 79 60 60 53 Al High 174 151 217 208 192 172 168 157 159 140 126 110 100 79 60 61 55 Executive L Technical B3 Low 180 156 197 189 175 157 153 138 141 124 112 97 100 79 60 80 72 83 High 132 114 144 139 128 115 112 148 151 133 120 104 100 79 60 62 56 SI LoW 179 155 196 188 173 156 151 137 138 122 110 96 100 79 60 61 55 B1 High 157 136 172 165 152 137 133 134 158 140 126 110 100 79 60 59 53 Clericat Officers Z TAs C2 Lo 138 119 152 145 134 121 108 140 149 131 118 103 100 79 60 65 58 C2 High 110 96 121 116 107 96 94 117 122 107 97 84 100 79 60 60 54 C1 Los 184 160 202 194 179 161 156 141 144 127 115 100 100 79 60 62 56 C1 Nigh 129 112 146 141 130 116 113 147 150 132 119 103 100 79 60 60 54 Secretariat Service D8 Low 124 111 154 140 147 130 117 102 100 79 60 62 55 D8 HiSh 190 171 143 145 151 133 120 104 100 79 60 63 57 Executives