MINISTERS’ DEPUTIES

CM Documents

CM(2022)28

8 February 2022[1]

1425th meeting, 16 February 2022 11 Programme, Budget and Administration   11.1 Co-ordinating Committee on Remuneration (CCR) Exceptional temporary measure applicable in case of very high inflation in Turkey – 283rd Report Item to be considered by the GR-PBA by written procedure

 

EXCEPTIONAL TEMPORARY MEASURE APPLICABLE IN CASE OF VERY HIGH INFLATION IN TURKEY

CCR Report (283^rd Report)

1.            General context

1.1.         In case of very high inflation (e.g. as it has been the case in Turkey where the inflation rate measured from June to December 2021 has been equal to 25%, particularly due to the massive increase registered in December), the implementation of the sole special adjustment mechanism would provide an upward adjustment of 7% while the increase in the harmonised index of consumer prices (HICP) would actually be much higher. The impact on the purchasing power of staff members represents a loss of around 18% to be endured until the next annual adjustment calculation. In case of very high inflation, the recurrent loss of purchasing power is actually the difference between the threshold used in the special adjustment mechanism (currently 7%) and the actual trend of the HICP, which may occur in a single month.

1.2.         For Turkey, the monthly HICP for December over November 2021 is 13.58%. Assuming the pace of inflation in Turkey remains at similar very high levels, staff members of the Co-ordinated Organisations posted in Turkey would lose more than an additional 30% of their purchasing power until the application of the next annual adjustment (on top of the 18% loss which would have been recorded up to December), if only the existing special adjustment method were to be applied.

Elements of comparison

1.3.         At the World Bank Group, there are special compensation measures in case of very high inflation. The trigger is based on the monthly consumer price index (CPI), when the year-on-year inflation reaches twice the threshold for Special Compensation Measures (from 15 to 30%). The trigger is assessed over one month and notably results in an off cycle salary adjustment.

1.4.         At the European Union, the Staff Regulations foresee an intermediate update where the cost of living measured in Belgium and Luxembourg (i.e. the Joint Belgium-Luxembourg Index) or the cost of living measured in any individual Intra-EU duty station outside Belgium and Luxembourg (i.e. implicit index, being the combined impact of the Joint Index and the change in the respective purchasing power parity) exceeds a specified threshold. The threshold is set at 6% for the year, interpreted as half of that value for six months (i.e. ±3%) with application on 1 January.

1.5.         For non-EU countries (e.g. Turkey), an intermediate update is made and the correction coefficients (CC) values are automatically updated, when the purchasing power parity (PPP) varies by more than ±5%.

1.6.         However, it should be noted that, as stated in the Staff Regulations, the remuneration of EU staff posted in third countries is paid in euros on the basis of the salary scale in Belgium; it is only at the request of the staff member, that all or part of the remuneration is calculated and paid on the basis of the CC for the place of employment and then converted into the local currency by means of the corresponding exchange rate. In reality, such requests are made only in those duty countries where the cost of living is higher than Belgium and feature a strong currency (e.g. Japan, Singapore, Switzerland, etc.). Therefore, in locations such as Turkey, where the CC is currently equal to 44 (when Brussels = 100), EU staff members posted there are paid on the basis of the Belgian scale in EUR.

1.7.         In the UN common system of salaries, allowances and other conditions of service, for the so-called UN Group II duty stations (which include Turkey and most developing countries around the world), the system foresees that the updating of post adjustments (which lead to the initial establishment of salary scales in USD before being converted in local currency) are reviewed every four months for inflation and exchange rate changes.

1.8.         As a reminder, post adjustments aim at establishing and updating the UN scales conceived for internationally recruited staff (professional staff). For instance, in the specific case of Turkey, while UN staff posted in this duty country only saw an evolution of around 7% across the year 2021 on their take-home pay in USD, their pay once converted in local currency more than doubled from January 2021 to December 2021, due to the decrease in the value of the Turkish lira against the US Dollar.

1.9.         UN General Service staff (support staff) are recruited and paid on a local basis. Salary scales for general services are calculated by means of periodic salary surveys (usually in four-year cycles) among best local employers. For Turkey, following the review of such scales in 2021 by means of the procedure established for interim adjustments (through mini-salary surveys) that took place in May 2021, the United Nations’ Secretariat, with reference to the current economic conditions in Turkey and its comparators’ reaction to the same conditions, has decided to approve a three-month special measure in the form of a non-pensionable bonus applicable to the scale for General Service staff, with effect from 1 December 2021.

1.10.      For December 2021, the amount of the non-pensionable bonus is set at 48.3% of net salaries. The amount of the bonus will be updated each month depending on the additional information obtained from the retained best local employer comparators and the UN official exchange rate. In parallel to the special measure, which may be extended as appropriate, the United Nations’ Secretariat plans to conduct an accelerated salary survey.

2.            Institutional framework

2.1.         Inflation measured by the consumer price index or the harmonised index of consumer prices is defined as the change in the prices of a basket of goods and services that are typically purchased by specific groups of households. Inflation measures the erosion of living standards, i.e. the decline in purchasing power. A consumer price index is estimated as a series of summary measures of the period-to-period proportional change in the prices of a fixed set of consumer goods and services of constant quantity and characteristics, acquired, used or paid for by the reference population (Source: OECD).

2.2.         Several sets of regulations recommended by the CCR foresee how inflation should be taken into account, notably on the way to address the specific situation of peaks of inflation.

2.3.         Article 8 of the 280^th Report of the Co-ordinating Committee on Remuneration (CCR) relating to the salary adjustment method for staff of the Co-ordinated Organisations [CCR/R(2021)4[2]] foresees that the CCR shall send a recommendation to the Governing bodies of the Co-ordinated Organisations  for a special adjustment of salaries whenever the relevant consumer price index in a country shows an increase of more than 7% over three consecutive months within the reference period of 1 July of a given year to 1 July of the following year.

2.4.         Article 6 of the CCR 242^nd Report on the method of adjustment of the allowances/supplements expressed in absolute value [CCR/R(2016)5[3]] makes similar provisions to address the situation when the increase in the relevant consumer price index in a given country exceeds 7% for three consecutive months.

2.5.         Article 8 of the CCR 229^th Report relating to the review of the system of the installation allowance [CCR/R(2014)4[4]] foresees that the provisions applicable for salaries shall be applied mutatis mutandis for the calculation of special adjustments of the ceilings of the installation allowance in countries with high inflation.

2.6.         The texts relative to these rules can be found in Annex 3.

2.7.         In all three cases, whenever the 7% threshold is exceeded for three consecutive months, a special adjustment equivalent to the 7% threshold is recommended by the CCR to take effect in the month following the first month when the threshold is exceeded.

2.8.         All these provisions serve their purpose and the CCR has recommended on several occasions in the recent past that special adjustments be made to salaries, to the allowances/supplements expressed in absolute value and to the ceilings of the installation allowance. However, such provisions are not adequate and relevant in cases where a country is facing very high inflation rates.

3.            Proposal for a specific and temporary measure

3.1.         The CRSG deemed it of absolute need that the CCR takes urgent action to protect the purchasing power of staff members of the Co-ordinated Organisations posted in Turkey. The CRSG has developed a comprehensive, temporary and time-restricted measure for this purpose which could be recommended by the CCR.

3.2.         It is based on the monitoring of the month-to-month trend of HICP and on the use of the 7% threshold already used in the regulations. The proposed measure does not supersede but complements the existing legal framework.

3.3.         Each time that, within the reference period that started on 1 July 2021, a national consumer price month-on-month trend shows an increase of more than 7%, the CCR will send a recommendation to Governing bodies of the Co-ordinated Organisations providing for an exceptional temporary adjustment of salaries for that country’s scale, as well as for a special adjustment of allowances/supplements expressed in absolute value and ceilings for the installation allowance.

3.4.         The exceptional temporary adjustment granted will be equivalent to the overall inflation trend measured from the reset point of inflation monitoring.

3.5.         The exceptional temporary measure will be governed by all provisions on special adjustments in terms of date of effect, reset for the purpose of monitoring of consumer price trends and deduction for the purpose of calculating the annual adjustment at 1 January 2023.

3.6.            The exceptional temporary measure will apply mutatis mutandis for other countries where staff members of the Co-ordinated Organisations are posted. An assessment of the measure will be carried out by the CRSG in 2023 and submitted to the CCR, after consultation with the CRP.

Simulation

4.            Conclusions

Position of the CRSG:

The CRSG welcomes the CCR recommendation enabling the Co-ordinated Organisations to take urgent action to protect the purchasing power of staff members by complementing the existing legal framework with a comprehensive temporary and time-restricted measure. It is critical that Co-ordination displays its ability at reacting swiftly in difficult circumstances such as the ones experienced at present by staff in Turkey.

Position of the CRP:

The CRP shares the CRSG’s opinion that the special adjustment mechanism for the current salary method does not address exceptional situations of very high inflation, which are currently occurring in some countries such as Turkey. The CRP therefore warmly welcomes the CRSG’s proposal, presented in document CCR/CRSG/CRP/WD(2022)1, which is designed to reduce the impact of very high peaks of inflation on the purchasing power of officials.

The CRP notes that:

‒         if approved, this temporary measure would first be applied with effect from 1 January 2022, with a 25% adjustment to account for increases in inflation between July and December 2021;

‒         this adjustment would replace the adjustment that would have otherwise been applied under Article 8;

‒         any following adjustments would be monthly, for as long as inflation exceeds a month-on-month increase of 7%; otherwise, Article 8 would apply.

The CRP noted that the proposed measure would apply to the current reference period which started on 1 July 2021, and that an assessment of the measure would be carried out by the CRSG in 2023 and submitted to the CCR, after consultation with the CRP.

5.                Recommendations

The Co-ordinating Committee on Remuneration (CCR) recommends Governing bodies:

a)                to adopt the exceptional and temporary measure for salaries in case of very high inflation, as set out in Annex 1 to the present report;

b)               to decide, according to this exceptional measure, to adjust the salaries in force as at 1 January 2022 for Turkey by 25%, with effect from 1 January 2022;

c)                to note that, in accordance with the interpretation given to paragraph 3 of the 34^th Report by the CCG [CCG(65)5], the salaries of auxiliary staff serving for the Co‑ordinated Organisations in Turkey, if applicable, will be adjusted in accordance with the provisions of this report;

d)               to adopt the exceptional and temporary measure for allowances/supplements of the Co‑ordinated Organisations expressed in absolute value, as set out in Annex 2;

e)                to decide, according to this exceptional measure, to adjust the monthly amounts for the allowances/supplements expressed in absolute value in force as at 1 January 2022 for Turkey by 25% with effect from 1 January 2022;

f)                to note that, in accordance with Article 8 of the Rules on installation allowance set out in the 229^th CCR Report [CCR/R(2014)4], the exceptional and temporary measure for salaries in case of very high inflation would be applied mutatis mutandis for the calculation of special adjustments of the ceilings of the installation allowance in countries with high inflation;

g)               to decide that, as an exceptional adjustment, the ceilings of the installation allowance, at 1 January 2022, be increased by 25% for Turkey with effect from 1 January 2022.

David Sydney Maddicott

Chairperson

(Paris, 4 February 2022)

ANNEXES

Pages

Annex 1...... Exceptional and temporary measure for salaries in case of very high inflation ................... 8

Annex 2...... Exceptional and temporary measure for allowances/supplements of the Co‑ordinated Organisations expressed in absolute value in case of very high inflation............................ 9

Annex 3...... Set of rules governing special adjustments currently in force........................................... 10

ANNEX 1

EXCEPTIONAL AND TEMPORARY mEASURE FOR salarIES IN CASE OF VERY HIGH INFLATION

In addition to the provisions set out in Article 8 of the salary adjustment method recommended by the CCR in its 280^th Report [CCR/R(2014)4], each time that, within the reference period that started on 1 July 2021, a national consumer price month-on-month trend shows an increase of more than 7%, the CCR shall send a recommendation to Governing bodies of the Co-ordinated Organisations providing for an exceptional temporary adjustment of salaries for the scale of that country. Such exceptional adjustment granted shall be equivalent to the overall inflation trend measured from the reset point of inflation monitoring.

The provisions set out in Article 8 relating to the date of effect, to the monitoring of consumer price trends and to the deduction for the purpose of the annual adjustment at 1 January 2023 shall apply to any such exceptional adjustment.

ANNEX 2

EXCEPTIONAL AND TEMPORARY MEASURE FOR allowances/supplements of the Co‑ordinated Organisations expressed in absolute value IN CASE OF VERY HIGH INFLATION

In addition to the provisions set out in Article 6 of the method for adjusting the allowances/supplements of the Co-ordinated Organisations expressed in absolute value recommended by the CCR in its 242^nd Report [CCR/R(2016)5], each time that, within the reference period that started on 1 July 2021, a national consumer price month-on-month trend shows an increase of more than 7%, the CCR shall send a recommendation to Governing bodies of the Co-ordinated Organisations providing for an exceptional temporary adjustment of allowances/supplements expressed in absolute value applicable for that country.

Such exceptional adjustment granted shall be equivalent to the overall inflation trend measured from the reset point of inflation monitoring.

The provisions set out in Article 6 relating to the date of effect, to the monitoring of consumer price trends and to the deduction for the purpose of the annual adjustment at 1 January 2023 shall apply to any such exceptional adjustment.

ANNEX 3

Set of rules governing special adjustments currently in force

CCR/R(2021)4

CHAPTER VI: SPECIAL ADJUSTMENTS OF SALARIES

Article 8: Special adjustments of salaries

8.1       Each time that a national consumer price index shows an increase over three consecutive months within a given reference period of more than 7%, the CCR shall send a recommendation to Governing bodies of the Co-ordinated Organisations providing for a special adjustment of salaries for the scale of that country.

8.2       The special adjustment granted shall be equivalent to 7%. Any special adjustment shall take effect the month following the first month when the threshold is exceeded.

8.3       In case of a special adjustment, the monitoring of consumer price trends shall then be reset, taking the consumer price index of the first month during which the 7% threshold was exceeded as the basis to further monitor inflation until the next special or annual adjustment.

8.4       Any special adjustment granted during the reference period used for the calculation of the annual adjustment at 1 January shall be deducted from this annual adjustment.

CCR/R(2016)5

Article 6: Special adjustment of the allowances/supplements expressed in absolute value

6.1       Each time that, within the reference period, the relevant consumer price index in a country, as defined in Article 4.7, shows an increase over three consecutive months of more than 7%, the CCR, upon being informed by the International Service for Remunerations and Pensions (ISRP), shall send to the Governing bodies of the Co-ordinated Organisations a recommendation providing for a special adjustment to the monthly amounts for the allowances/supplements expressed in absolute value. The first of the three consecutive months shall fall within the reference period.

6.2       Each time that the 7% threshold is exceeded, the special adjustment granted shall be equal to the threshold, i.e. 7%. Special adjustments shall take effect the month following the first month in which the threshold is exceeded.

6.3       The 7% threshold is measured as from 1 July of the beginning of the reference period or, if a special adjustment has already been granted during this period, from the date of effect of this special adjustment.

6.4       Any special adjustment granted during the reference period used for the calculation of the adjustment at 1 January, shall be deducted from the following adjustment.

CCR/R(2014)4

Article 8: Special Adjustment

8.1       The provisions set out in Article 7 of the Remuneration Adjustment Method resulting from the 211^th Report and any subsequent revision of these provisions shall be applied mutatis mutandis for the calculation of special adjustments of the ceilings of the installation allowance in countries with high inflation.