
By Asoka S. Seneviratne –

Prof. Asoka.S. Seneviratne
Run up to the general election of 14th November 2024, the opposition is choosing topics to attack the government headed by Anura Kumara Dissanayake AKD//NPP. Easter Sunday bombs attacks in 2019, potential attack in Armugam Bay, President AKD not attending the BRKICS summit and salary increase to public servants based on the former Minister of Finance RW’s proposal to the cabinet are among them. All above are simply to gain political advantage. But the public do not take any concern of the above. Salary increase costs about Rs. 400 billion annually and its implications are there for future pension payment of about Rs. 700 billion. If the above cannot be met by increased government tax revenue, it will no doubt impact on the current total debt repayment of well over Rs. US$ 100 billion. If so, it will affect the IMF program and also destroy the stability that has been achieved so far along the IMF program. Simply, 40% salary increase has mounting macroscopic implications or it will destabilize the macroeconomic fundamentals. Given the above, it cannot be done by “one go”. “5-Year Collective Agreement” cycles as it happens in private sector is a best option because it is based on productivity increase and it easily goes with inflation, the main demand for salary increases. In short, AKD pledged to adjust salaries for every 6-month in line with inflation, which more feasible and realistic and for which president AKD got a mandate from citizens. Given the above, there is no doubt that the AKD/NPP government will do the needful. Former Minister of Finance RW has no role to play on the above as he is null and void so that must stay home.
Cries of the opposition
The opposition parties looking for topics for the general election on 14 November 2024 to attack AKD/NPP government. Easter Sunday bomb attacks is one of the popular topics selected.
The above took place when the opposition was in power but they failed to deliver the justice to the victims, while the people who were responsible have not been punished yet. After five (5) years those who failed to deliver justice to the victims and punish the people responsible for the carnage, now cry that the current government will not be able generate the expected outcome given the right people are not heading the investigation. This is purely seeking political advantage aiming the general election because the opposition failed for 5 years to probe the carnage and do the justice to victims. AKD/NPP has been in power for a one month but the opposition accuses that AKD/NPP will not be able to probe the carnage to generate the expected outcome. There is no doubt the AKD/NPP government will generate the expected outcome so that it is good that the opposition to wait and see the outcome. Potential attack in Armugam Bay and national security concerns, President AKD not attending the BRKICS summit, prices of eggs and coconuts and salary increase to public servants based on the former Minister of Finance RW’s proposal to the cabinet are other topics selected to attack the government.
Regarding salary increase, the AKD/NPP government is committed go in the right direction but it is not instant coffee like undertaking. Regarding the pension and fertilizer and fuel subsidy payments, the government did the right thing as the fiscal space was there to do so.
The point is that the government has to do all with the parameters of the IMF Program that the opposition agreed and blindly signed with the IMF without proper analysis and assessment of such parameters on welfare of the people in general and burden on the economy for a long time because of the well over US$100 billion debt repayment after 2027.
Facts and figures on salary increase
Given the great necessary for salary increase to public servants, there are important facts and figures that are required to take into account for both public for their understanding and for the government to assess and quantify the required funding requirement and their impact on the government budget by now and for the future because it is a flow.
There are about 1.2 million public servants in the country and who’s the current salary bill per annum is about 950 billion rupees. That means, each 10% salary increase would have an incremental salary cost of Rs. 100 billion to the government budget. On the other hand, government needs to ensure that there will be an equivalent of Rs. 100 billion revenue increase at the same time. There is no need to remind that the current government budget is in deficits or expenditure is higher than the revenue. Provided Rs. 100 billion is not compensated by concomitant revenue increase of Rs. 100 billion, the current budget deficit will be widened impacting on the parameters of the IMF Program.
Ex-Prez Ranil Wicremesinghe (RW) and Dr. Rajitha Senaratne highly emphasize on salary increase as part of the general election campaign, along with the cabinet decision taken about two weeks ago the last presidential election.
RW proposed about 30% salary increase, it was 30% for the lowest grade, the highest grades would receive about 50% salary increase. Given the above scenario, the average incremental percentage would be 40%. The impact of the above or the annual incremental cost would be Rs. 400 billion which is about 1/10th of the total government revenue. The above means that AKD/NPP government should ensure Rs. 400 billion additional revenue is generated or secured. In other words, if the cabinet decision of the previous government wants to be implemented, AKD/NPP government needs to ensure there will be Rs. 400 billion increase of the government revenue at the same time. If not, it will increase the total debt burden, top of the current total debt burden of about US$100 billion. Sudden increase of such would be mammoth in scale as to earn that revenue through VAT alone would require about 5% – 6% increase in the rate that would further escalate the economic hardships felt by the economically vulnerable people. On the other hand, if government cover-up that through by increasing the direct taxes further (personal income tax and corporate income tax), the consumption and investment would hamper and that will definitely reduce the indirect taxes collected through VAT and import levies / duties. So, it is evident that massive increase in public servant salaries cannot be done in “one-go” due to its macro-economic implications. Further, it should be noted that salaries are always in tie with the pension cost of the government in medium to long-term. (ie: Currently, the government spends about Rs. 400 billion per annum for 720000 pensioners)
By knowing the above economic and social realities, the AKD/NPP government has been convinced of the fact salary must be increased given the decrease of real value of money income along the high degree of inflation prevailed in 2022-2023 and absence of meaningful or adequate salary increases over the last 5-6 years to compensate the pressure generated by the high degree of inflation on real income. As per the CBSL statistics, by August 2024, the public sector nominal salaries have increased by about 61% from its base level in 2016. But during the same period, the CCPI based inflation has gone up by 120% (ie: Compounded based on month-on-month CCPI inflation). So, based on 2016 scale, the real value of public sector salaries is 27% below from its 2016 base and to replenish the real value to its 2016 would require about 36% increase to the nominal wages on average. In addition to this, the exorbitant increase occurred in Advanced Personal Income Tax -APIT (ie: relevant to executive grade salaries of public sector) should also be given due consideration.
The point is that how to go ahead with 40% salary increase along with reality on the ground based fiscal management and treasury cash flow planning. I wonder the cabinet submission to increase salary to public servants accompanied details with fiscal management strategy and in-depth analysis of the treasury cash flow planning and advises on macro-economic implications from the Central Bank of Sri Lanka. In short, necessity of salary increase is one thing, and how to go ahead with fiscal management strategy and in-depth analysis of the treasury cash flow planning and macro-economic implications are another thing, the latter is more crucial in assuring the right direction in medium to long-term.
Impact of salary Increase
Another important aspect whether cabinet submission by RW to salary increase included an impact assessment of salary increase on future payment of pension obligation that AKD/NPP government needs to take into account. Currently, the government allocated about Rs. 400 billion for 720,000 pensioners. It is forecast that there will be about 1 million pensioners by 2035-36. Given the above, the cost shall be doubled (i.e Rs 800 billion) by 2032 due to higher salaried employees’ retirement over the next 6-8 years.
Along with the IMF program, economy has achieved some stability on (i) the basis of having been able to generate the required surplus in the primary account, (ii) increased foreign reserves to US$6.5 billion, (iii) stabilization the value of rupee and (iv) government revenue increase from the previous 8% of GDP to about 12% of GDP, to name a few of the positive results of the IMF program. However, the economy is still fragile given the pathetic situation as all forms of poverty increases, increasing exodus of skilled people and when mapping the debt repayment obligation after 2027. Given the above, impact of the salary increase of Rs. 400 billion and associated increase in pensions will no doubt destroy the stability that has been achieved by the economy so far. Even though about 90% of the government revenue is generated by Customs, IRD and Excise Department through direct and indirect taxes, it seems that they have not yet fully committed to perform their work responsibilities for revenue increase effectively and efficiently.
Salary Increase: Better focus to the future in a right manner
Given the utmost concerns for salary increase, the bottom line is that it should be based on productivity & demand-supply for professions. Ideally, the public-sector (Health, Education, Public Transport, General Administration, Customs, and Inland Revenue) should implement “5-Year Collective Agreement” cycles as it happens in private sector and commercial oriented State-Owned Businesses, in an effective manner for decades now. In short, productivity increase paves the way for GDP increase and hence, it makes room to generate additional government revenue to afford future salary increase/expenditure without destabilizing the macro-economic fundamentals.
Also, it is essential to focus on the stability of the exchange rate along with concerns for salary increase. If the stability in exchange rate (ie: with a mild volatility within +\- 4% and production improvement in agriculture, fisheries and livestock), the inflation can be maintained around 3%-5% which is inline with the medium-term inflation objective of the CBSL too.
Given the above, it requires only an 6-month salary adjustment of 2% on average. Another thing that AKD/NPP government should assure is that having right skilled and experienced people for right job at the right time as far as possible from the top to the bottom to ensure productivity increase. Adhering to the above will ease work responsibility of AKD/NPP government. As said previously, there is a direct link between salary increase and productivity increase.
Political Maturity of RW is less than zero
Regarding the above, this article is not aimed to write again how RW did his maximum or utmost to postpone the presidential to stay in power and control, against the constitution and democratic principles, an utter shame for him. He is well educated and 76 years and the parliamentary life is alone about 50 years. Given the above, he said to a youth forum at the Galle Face Hotel that before the last presidential election, he is a cunning politician that shows his unethical power-greedy behavior and mere immaturity. It was in a hurry and purely aiming and winning the presidential election, previous RW government decided to increase salary to the public sector employees. Following the cabinet decision to increase of the public servants, Ex-Prez RW met some professional bodies like university academics and promised to increase salaries while he gave wide publicity to the decision to increase public servants salary for political gain. In short, RW was defeated because pubic servants in particular and public in general no more ready to swallow political carrots of the cunning political like RW.
Former Prez RW states the required funds were with the Treasury along with his proposal to increase salaries to the public servants so that he questions what happened to those funds allocated. Simply, current Minister of Finance AKD did not swallow those funds, if they had been allocated. Unfortunately, it seems no evidence for such allocation. Furthermore, former Minister of Finance states the current government should implement the said cabinet decision. I do not think that the current government needs to listen to former minister of finance at all. In short former Minister of Finance RW is null and void because as he obtained only 17% of the votes during the presidential election, he was defeated by 87% voters. As president AKD said, RW should stay home and AKD will do the needful as he got mandate from citizens to do so.
*The writer, among many, worked as the Special Advisor to the Office of the President of Namibia and was a Senior Consultant with UNDP for 16 years. He worked as a Senior Economist with the Central Bank of Sri Lanka (1972-1993) before he migrated to New Zealand. The author can be contacted at asoka.seneviratne@gmail.com
Naman / October 29, 2024
AKD needs to be very careful in letting the Israeli young tourists coming to SL
under the prevailing conditions in the world. They may be also carrying the USA passports. A very careful/meticulous record should be kept of these visitors to our isle. They should be screened and their iris and fingerprints kept as records.
We do feel that it is very inappropriate for them to come to SL for break and enjoyment after their duties for the Israeli government.
GoSL should discourage Sri Lankan citizens seeking jobs in the battle zones (Israel)
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LankaScot / October 30, 2024
Hello Naman,
It’s not only Israel that you need to discourage them from going to. My Niece’s Brother in Law went to fight for Russia in Ukraine. He was incommunicado for a while and now we hear he has lost a leg. I warned him before he went that Russia was using them as Cannon Fodder, but (I am told) he thought that being a Special Forces Trainer he wouldn’t be sent to the front line.
Best regards
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old codger / October 30, 2024
. “If so, it (salary increase) will affect the IMF program and also destroy the stability that has been achieved so far along the IMF program”
Is it permissible to ask Professor ASS who is responsible for this stability?
Did AKD have anything to do with it? Did Professor ASS not know of this before the election?
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old codger / October 30, 2024
“Given the above, it requires only an 6-month salary adjustment of 2% on average. ” says Prof. Don…sorry, ASS. What happens when inflation is negative, as it is now. Will the workers accept pay cuts? I think not.
It is increasingly apparent that authors who decry “corruption”, selling off state property, etc. deliberately turn a blind eye to the real reason for all this. To put it bluntly, we live way beyond our means. The biggest bribe in the country is the 400 Billion that is paid to the 300,000 members of an armed force that is bigger than that of the UK. In effect, these people are paid to keep them off the streets. What is the point of the author talking about support for local industry when a good proportion of the workforce is tied up in this way?
I doubt AKD will have the guts to tackle this problem.
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Ajith / November 2, 2024
I am sure AKD Knew it. Professor ASS knew it? RW knew it? Ordinary People knew it. When a President failed to have postponed Local Council election due to bankruptcy Country, How the President dared to promise during Presidential election in November 2024 to increase the pay by 40% of government servants by January 2025. He knew well he cannot win the election. He did not get even half of the votes of Sajith and 1/3 rd of Anura. Who is the liar? It is definitely Ranil. Ranil bribed Rajapaksas to become President. But the People made a correct choice. Now he wants 19 chefs and now says it is Rajapaksa who killed Tamils and should be protected him for killing Tamils.
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Ajith / October 30, 2024
Not only AKD but the whole country should be very careful about USA and RW who is an agent of USA. USA wants RW as head of this country because he is the only person never elected by people. He came to power only after a joint Coup in 2022. Both USa and RW were confident that people will elect RW. When they failed now they used this terrorist drama to stop tourism and create dollars shortage. USA and RW are real dangerous to the country and people.
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Douglas / October 29, 2024
We knew that Ranil W’s so-called Salary increase announced just a few days before the Presidential election, was a hawkish ploy to garner the support of Public Servants.
Ranil W thought the Public Servants would fall for it and eat the bait. To his (RW’s) criminal mind, it never occurred to him that the Public Servants knew the proper procedure—making such a proposal not only needs Cabinet approval (RW says Cabinet approved it) but also must be presented to Parliament (either through a Budget proposal or motion in Parliament) with proper estimates for the expenditure. Also, it was known that the proposed increases were huge ranging from 75% to 50% and that cannot be implemented without the IMF concurrence as per the “Agreement” signed.
To make this claim of RW further irrational, ambiguous, and hawkish, the Treasury Secretary has now confirmed that no such proposal has been referred to them and no financial provisions have been made.
With all that knowledge, RW is “Supposed” to have in managing public affairs, the “Hawkish” and “Criminal” mindset in-born prompted him to underestimate the capacity of the Public Servants to judge him very accurately and vote against him to be pushed to the “3rd” place at the election. He (RW) never learns and is a “Write-Off”.
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Ajith / October 30, 2024
“We knew that Ranil W’s so-called Salary increase announced just a few days before the Presidential election, was a hawkish ploy to garner the support of Public Servants.”
Ranil W lead so many political coups in this country. This is another political coup by him. He is dangerous than any other Sinhalese leaders.
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Douglas / October 30, 2024
Ajith: You are spot on in saying: ” He is dangerous than any other Sinhalese leaders”.
Yesterday, addressing a pocket meeting in Pannala (Kurunegala District) he said: ” Let me teach Harini the Constitution. Where in the Constitution it says that Public Servants salaries cannot be increased, and asked: “How can we run a Government with these babies?
What a hypocrite this RW is? Yesterday was the “Postal Voting” day. He targetted the Public servants in enticing them with this hypocritical statement. But the Public Servants know that such a huge increase amount around 600 billion has to be approved by the Parliament as it is the regulatory authority on such public expenditure. This HYPOCRITE must be swept out of politics. Sooner the better for the country.
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