Public sector wage increases, where’s the cash coming from - EDITORIAL

President Wickremesinghe in his capacity as Minister of Finance announced during his presentation of the budget, that government was planning to increase salaries of public sector workers by Rs. 10,000/-. Undoubtedly public sector workers would have welcomed the promised salary increase, even though worker unions claimed it was insufficient.   

The General Secretary of the State and Provincial Government Trade Union’s Federation, speaking to the media said that although there must be at least a salary increase of at least Rs. 30,000, understanding the dire situation of the country, the trade union was only demanding a salary increase of Rs. 10,000/-.   

In 2022, according to ‘Economy Next’ our country had over 1.5 million public sector employees, the numbers having doubled over the past 15 years. This figure does not take into account those in the police and armed forces! According to the same source, we have one public servant for every fourteen citizens. In other words you and I - the public - should be enjoying a very efficient service.   

Sadly this is far from the case, with most state owned enterprises (SOEs) having become a dumping yard for politicians to recruit their supporters. The result, more employees, but with very little do in spite of a monthly payment and pension scheme.   
Power and Energy Minister Kanchana Wijesekera for instance, has said there are 26,000 employees working in the state-owned Ceylon Electricity Board (CEB) alone. The minister claimed the CEB could be run with just 5,000 employees.   

Government’s own data reveals in 2021, it paid 86 cents as salaries and pension payment to public servants from every rupee it earned as tax revenue.   
According to the Asian Development Bank (ADB) our agriculture production contracted by 4.6% in 2022. The chemical fertilizer ban, which was in effect from May to November 2021, cut average rice yield by 33.8% for the Maha 2021/2022 season, which is the country’s major cropping season.   

Even after the fertiliser ban was rescinded, its lingering effects and foreign currency scarcity constrained fertiliser imports, hampering the cultivation of the next crop and reducing rice production in 2022 by 34.1%. Other key agricultural products such as tea, a major foreign exchange earner, and fruit and vegetables also suffered sharp declines.   
Most state employees suffering under the strain of increasing costs of living (COL), which include the recently revised electricity and water prices, probably welcomed the ‘relief’ the proposed wage increase offers. But in reality, can government afford to pay these wage increases? Or will the wage increase only increase inflation, which in turn will see a further rise in the COL which in turn will nullify the proposed pay rise.   

To pay the proposed increase in wages, our country needs to increase its real wealth. Only increased exports can bring in increased foreign currency that can enable the country to pay the increase expenditure which will arise from the proposed wage increase.   
As we mentioned earlier, even at this moment the country continues to pay 86 cents as salaries and pension payment to public servants from every rupee it earns as tax revenue. So from where does government expect to cover this added expenditure?   
Does government have a plan to expand the country’s capacity to earn more foreign exchange?   

President Wickremesinghe has spoken of joining the Regional Comprehensive Economic Partnership (RCEP) that puts us into the South East and East Asian markets and make us part of the global supply chain and upgrade free trade agreements. If successful, it will help increase our capacity to increase foreign exchange earnings.   
Keeping in mind our foreign debt stands at around $41 billion, and that a study by ‘Trading Economics’ reveals our foreign exchange reserves decreased to USD 3,540 million in September from 3,600 USD million in August of 2023.   
We need to grab these opportunities.   
China’s Belt Road Initiative (BRI) offers another opportunity for us to play an even bigger role in the global supply chain. One of the best examples of this type of growth is Vietnam, which for more than a decade has made a priority of attracting top technology brands like Intel, Samsung and Xiaomi to set up supply chains to the country.