Manila, July 8:
Many developing countries are paying higher salaries to their state employees than they can afford and stunting economic growth in the process, a study by the Asian Development Bank (ADB) shows.
â€œThe higher the relative government pay rates, the lesser the economic growth attained,â€ the study of 19 Asian, African and Latin American countries stated.
â€œThe high relative government pay rates cost the country in terms of economic growth, while the higher employment share does not seem to have any economic growth impact,â€ it stated.
It said part of this could be due to â€˜rent-seeking behaviourâ€™ such as minimum wages set above the competitive rate, wage adjustments getting ahead of actual productivity growth and misguided attempts by politicians to increase employment or redistribute wealth.
â€œIndia stands out among the high-pay countries, as it has experienced one of the most pronounced increases in relative government pay rates in recent decades,â€ the study said. â€œThe least favourable estimates identify Bangladesh as a country with one of the highest relative government pay rates.â€
While listed as a high-paying country, Vietnamâ€™s pay rate has â€˜fallen rapidly, and it may no longer be of concernâ€™. It said economic rents embedded in government pay rates â€˜reduce the affordability of government and reduce the coverage of public services essential to
economic growthâ€™. The resulting high government pay â€˜leads to far less employment in government, and the creation of a group of unemployed labour in search of government employment.
It said these countries â€˜could raise their economic growth by reducing relative pay rates in government and using the budget savings to expand employmentâ€™.