• Govt. sector salary adjustments to be contained at 3.6% of GDP in 2024 and 3.8% of GDP in 2025, avoiding crisis risk again
• Private sector wages increased by 28% between January 2022 and December 2023; public sector wages remained stagnant

Sri Lanka’s proposed public sector salary adjustment in 2024 and 2025 will ensure that the public sector salary expenditure will remain well below 4% of GDP (Gross Domestic Product), the level at which it was at the height of the crisis in 2022, the Finance Ministry said.

In a statement, the Finance Ministry said that the salary adjustments in 2024 and proposed adjustment in 2025 would be structured such that the expenditure on public sector salaries will be contained at 3.6% of GDP in 2024 and 3.8% of GDP in 2025, which is still below the 2022 level.

It said that whilst public sector wages remained static in 2022 and 2023, the private and informal sectors of the economy benefited from nominal wage adjustments as private sector wages increased by 28% between January 2022 and December 2023.

The Treasury said that given the government’s inability to adjust public sector wages in the initial years of the crisis, the government’s expenditure on salaries and wages of public servants declined gradually from 4.8% of GDP in 2021 to 4% of GDP in 2022, and 3.4% of GDP in 2023.

“Considering the adverse impacts on the well-being of public servants, the government committed to adjust public sector wages gradually in line with improvements in the fiscal position and overall economic stabilisation,” it said, adding that it was expected that an initial increase could be provided in 2024, followed by a more substantial adjustment in 2025 when the fiscal position is expected to have recovered to a stable level.

The statement said that from a fiscal standpoint, the overall 2025 fiscal path ensures that government revenue would reach 15% of GDP, supported by the gradual relaxation of motor vehicle imports and primary expenditure would be 12.7% of GDP, which includes 4% of GDP on capital expenditure.

Thus, the Finance Ministry said that the 3.8% of GDP expenditure on public sector wages will fall within the remaining space for recurrent primary expenditure while revenue of 15% of GDP and primary expenditure of 12.7% of GDP will ensure that the primary surplus of 2.3% of GDP will be met in 2025, ensuring compliance with the IMF programme targets.