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Is public spending back to the bad old days?

By Fiona Mullen

This week the Statistical Service, Cystat, published statistics on employment in the broad public sector. The figures show that public-sector employment has hit its highest level since the Cyprus financial crisis, reaching 60,146 in the first quarter of 2017, compared with a previous peak of 61,510 in the same period of 2012.

We are now fewer than 12 months away from the presidential election due in February 2018, so this begs the question of whether the government has fallen back on its bad old ways by going on a hiring spree ahead of the polls.

Let’s take a look at the evidence.

Rising employment

Public-sector employment has been rising steadily since 2016. Although there was a small year-on-year dip in the third quarter of 2016, employment for the year as a whole was up by 663 persons or 1.1%.

The increase in the first quarter of 2017 was rather higher: there was a year-on-year rise of 2,574 or 4.5%. This is the fastest increase on record, although it should be noted that the records only go back to the beginning of 2009.

The rise in 2017 was entirely within the ‘central government’ sector, where employment rose compared with the year-earlier period by 2,639, or 5%, to 55,942. Employment in local authorities, on the other hand, declined, to 4,204 in the first quarter of 2017, from 4,269 in the same period of 2016.

Employment in ‘publicly owned enterprises and companies’ pretty much stagnated, reaching 5,978 in the first quarter of 2017, compared with 5,983 in the same period of 2016.

We can see where the increase in government employment is coming from by looking at separate data on ‘government employment’, which includes civil servants, teachers and others in education, the security services, and those paid on hourly contracts.

These show that the biggest increase has been in the security services. In the first quarter of 2017, this category rose year on year by 2,717. The number of employees in education also saw an increase, but by a much lower 246.

On the other hand, the number of civil servants fell in the same period by 68. Workers paid on an hourly basis also fell, by 176.

The increase in security services employment is, of course, related to the policy of introducing a professional army. The government’s aim is to hire 3,000 professional soldiers. The figures show that it is well on that way to reaching that target.

More casual workers

However, it is worth noting that all of these additional soldiers are counted as ‘casual’ workers. Indeed, this is the case for all government workers: there have been increases in casual employees for every category, but decreases in permanent workers for every category.

Casual workers presumably do not have the pay, privileges and perks that accrue to permanent employees. This is one sign, therefore, that we are not quite going back to the bad old practices of the past.

The other sign comes from government spending on ‘compensation of employees’. Here we have data going back to 1995.

Generally speaking, until the crisis started to brew in 2012, spending on employees rose far more quickly than it should have done.

The bad old days

Between 1995 and 2011, compensation of employees rose at an annual average pace of 7.7% per year. This was far higher than inflation in the same period. I calculate that, in real terms, the annual average rise in spending was 5% per year in this period.

The most astonishing increase was in the election year of 2003: in that year spending on public-sector employees shot up by 20.6%. Not surprisingly, overall government spending rose by 16.8% in that year.

Moreover, under the presidencies of Tassos Papadopoulos and Demetris Christofias, spending carried on rising every year after that, before taking a tumble from 2012, when Christofias was forced to make cuts to keep the now-defunct Laiki on life support. The latest data suggests that, while spending on employees is rising, we have certainly not reached the crazy days of 2003.

In 2016, spending on compensation of employees actually fell by 0.5%, despite the modest increase in the number of employees.

In the first quarter of 2017, compensation of employees rose year on year by just 1.7% – lower than the 4.5% increase in headcount.

In short, despite the theoretical freedom that has come with exiting the bailout programme, the Minister of Finance, Harris Georgiades, has kept his head, only loosening spending a little, and only adding casual employees in order to implement a longer-term policy on defence.

Forgive the ‘clickbait’ in the headline, therefore. The answer is no, we are not back to the bad old days. Long may it last.

The writer is Director of Sapienta Economics and author of the monthly Sapienta Country Analysis Cyprus covering macroeconomics, banking, natural gas, structural reforms, and fiscal and macroeconomic stability www.sapientaeconomics.com

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