News Column

IMF wants more civil servant pay cuts

August 1, 2014



By Angelos Anastasiou

SALARY cuts for civil servants need to be made permanent and remuneration policy needs to be overhauled to reflect performance if medium-term fiscal targets are to be met, according to the International Monetary Fund and its Cyprus mission head Delia Velculescu.

In a conference call on Wednesday, the Troika's Cyprus mission chief argued that "an additional fiscal effort of a permanent nature" will be required if Cyprus is to meet its target of a 4 per cent primary surplus by 2018.

"The adjustment will need to be gradual, of a permanent nature and growth-friendly, focusing on reversing the increases in spending prior to the crisis," Velculescu said. "What we are focusing on is the overall need for measures during this period [...] and that involves the public sector wage bill among others, and the focus here will be on permanent measures."

Following last week's wrap-up in the IMF's fifth assessment of the Cyprus adjustment programme, it issued a report making its conclusions public.

"A substantial fiscal consolidation has been implemented," the IMF report said. However, it added, "with public debt high and still rising, significant medium-term consolidation is needed."

"There is scope to further reduce the public sector wage bill, complemented by reforming the pay structure to better link pay with performance and eliminate automatic increments before the wage freeze expires in 2016."

Civil servants' salaries were slashed in mid-2013 in the face of fiscal implosion. The cuts were tiered, ranging from 10 per cent to 17 per cent, and were imposed on a temporary basis until 2016.

But the IMF favours abandoning the previous remuneration model for civil servants, arguing that previous government salary levels were unsustainable and proposing that the cuts become permanent and performance-based remuneration replaces automatic salary increments.

Predictably, the issue raised red flags for the media and the public servants' union.

AKEL-affiliated trade union PEO issued a statement lambasting the IMF and the Troika.

"Once more, the IMF and the Troika are behaving arrogantly and in an authoritarian manner," PEO said. "It's as if Cyprus is their protectorate and they are the Cyprus people's guardians."

The government did not escape PEO's criticism. The union accused it of a submissive stance to the Troika's every wish, and warned of drastic countermeasures.

"If Mrs Velculescu and the people she represents wish to lay the groundwork and prepare public opinion for new harsh attacks on salaries, pensions and workers' rights, they should be aware that the workers' patience has run out and that our reaction will be immediate, decisive and commensurate to the provocation."

Meanwhile, taking questions after unveiling the government's foreclosure and insolvency policies, President Anastasiades was asked about the prospect of salary cuts for civil servants.

"This matter was raised by our international lenders during the Troika's recent progress review, but it was rejected decisively and categorically," Anastasiades said. "As long as we remain consistent in meeting our obligations, we have no obligation to adopt the suggestions of any Troika member."

Commenting on the issue on state radio, Finance minister Harris Georgiades said that salary reductions are a staple of the IMF. He noted that he agrees in principle on the issue of amending remuneration policy and said that he has in the past spoken out for the need to eliminate automatic salary increments.

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Source: Cyprus Mail


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