Ethiopia Undertakes Civil Service Reform With 70 Million Dollar World Bank Loan

A 70-million-dollar World Bank project targets a shift towards a competence-based civil service by leveraging technology and modern human resource management systems. The four-part governance modernization initiative is slated for full funding by 2029, bringing comprehensive upgrades to the country's public service.

Signed by Finance Minister Ahmed Shide and newly appointed WB regional director Mariyam Salim, a steering committee will be formed within two months to oversee the project, under the guidance of the Council of Good Governance in the Prime Minister’s Office. Although the Council is part of the government’s broader reform program, it will not be directly involved in the implementation structure.

Ethiopia’s civil service has ballooned from around 190,000 in 1991 to nearly 2.5 million individuals today, with teachers and medical workers accounting for nearly half of the workforce. Prime Minister Abiy Ahmed’s (PhD) administration has presaged a thorough civil service reform over the past few years as it grappled with a public sector wage bill that swallowed nearly half of public expenditures.

Around 25 million dollars will be allocated towards upgrading public administration capabilities, which includes an integrated Human Resource Payroll System (IHRPS) with online transaction and analytical processing functionalities. Specialized training of HR units within selected government bodies in addition to systems for performance evaluation, career development criteria, and regulations for outsourcing are envisaged by the project. An HR analytics unit within the Civil Service Commission that focuses on assessing gender-disaggregated data collection is also planned as part of reducing gender disparities.

Low salary satisfaction, inadequate resources, lack of professional development opportunities, and low prestige for civil servants are cited as being drivers for low levels of motivation.

The transition towards a competency-based human resource management system will include establishing an online recruitment portal and competency assessments under the Commission.

While initiatives like the WB’s Digital Foundations Project accelerate connectivity through infrastructure, critical governance and capability issues in public service remain unaddressed. A 2022 World Bank survey of federal civil servants found that only half were recruited through examination and interview, while many complained of implementation biases in performance evaluations.

However, part of the budgetary challenge presented by an expansive civil service emanates from inadequate tax collection, as often highlighted by experts. Deployment of technology and data analytics to improve domestic revenue mobilization and potentially double the tax-to-GDP ratio to nearly 30% is the second component of the project.

Nearly 20 million dollars of the total credit line is allocated to complementing the National Medium-Term Revenue Strategy, which received approval from the Council of Ministers on Tuesday morning. This includes procuring new hardware systems for a data center at the Revenues Ministry’s headquarters, establishing a tax data warehouse, implementing e-invoicing, automating case selection for audits, and digitizing excise tax administration. Additionally, the initiative will focus on digitizing taxpayer registration, enhancing e-filing and e-payment systems, and streamlining complaint management processes to boost revenue collection efficiency

Greenhouse and energy saving are key themes throughout the project, swallowing up nearly 18 million dollars for the purchase of equipment that meets international specification standards. A VAT lottery to encourage consumers to ask for VAT receipts is also being considered to boost compliance.

The last two components of the project pertain to improved public finance and project management capabilities.