Cutting Government Pay during a Crisis: Key Issues

Posted by Mercedes Garcia-Escribano and Chadi Abdallah[1]

Amidst the COVID-19 pandemic, some countries are considering nominal pay cuts for government employees to facilitate the financing of emergency spending. Spending needs in the health sector and in support of households and firms are at all-time high. Meanwhile, preexisting high public debt levels and large decreases in tax revenues due to the economic impact of COVID-19 are limiting the ability of many governments to finance the required increase in such expenditure.  Given this constraint, some governments—as IMF notes—are turning to cuts in government pay as an expenditure reshuffling to help finance the emergency spending response.

Examples of countries that have announced pay cuts for some groups of government employees are:

Why the focus on compensation of government employees?

Several issues need to be considered when designing and implementing cuts to government pay.

Communication, transparency and accountability are equally important to ensure the success of this emergency and temporary measure.

A clear public communications campaign, with consistent messaging, that outlines why they are needed and that effectively paves the way for their reversal.

Transparency and public accountability in the implementation of pay cuts to ensure they achieve their intended objectives. This can be done by transparently reporting how the savings from the measures will be spent, and by monitoring how they are being spent.

This article is part of a series related to the Coronavirus Crisis. All of our articles covering the topic can be found on our PFM Blog Coronavirus Articles page.


[1] Mercedes Garcia-Escribano is a Deputy Division Chief, and Chadi Abdallah an Economist in the IMF’s Fiscal Affairs Department.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.