Although the Government previously announced its intention to decrease the size of the overcrowded public sector, no tangible actions or measures have been taken to date to implement this decision.
Speaking to The Sunday Morning, Research Economist Rehana Thowfeek said that reducing expenditure was definitely important and it was not fair that the Government had not offered many options for expenditure cuts such as reducing the public sector workforce.
Despite this move being expected, there are political dimensions that impact the decision. “Not a single political party says they will cut the staff because they know they will never be elected if so. Over 1.5 million civil and military workforce is a massive voter base if you also consider their families and dependents, so they don’t want to upset them,” she added.
Budget 2024 proposed raising the cost of living allowance of public sector employees by Rs. 10,000 effective from April 2024. There are 1.6 million public sector employees in the country and the number rises threefold or more when their family members are taken into account.
The public servants are also seeking a salary increase by at least Rs. 20,000 in 2024. A substantial portion of Government spending has already been allocated for salaries and pensions within the public sector, as indicated by official data.
Reports say that Sri Lanka is falling short of International Monetary Fund (IMF) tax revenue targets and in this backdrop, funding a salary increase will prove to be difficult.
Experts have shown that in order to meet the fiscal targets set by the IMF, the Government will be compelled to trim public sector wage and pension expenditure. Consequently, the Government will be obliged to implement workforce reductions in the sector.
No downsizing or recruiting
Speaking to The Sunday Morning, State Minister of Finance Shehan Semasinghe stated that the Government had no intentions of downsizing the State sector workforce. Simultaneously, he emphasised that recruitment activities would only be initiated if essential.
“The commitment to maintaining the current size of the State sector reflects the Government’s cautious approach in balancing the importance of public service continuity with the necessity for sensible fiscal management.”
Minister Semasinghe emphasised on the importance of any hiring being in line with the main aim of meeting crucial public service needs while being financially responsible and efficient.
Methods to reduce staff
Advocata Institute CEO Dhananath Fernando speaking to The Sunday Morning briefly explained the potential methods to reduce State staff.
“My view is that this process should be undertaken gradually as part of a long-term strategy because simply asking people to leave abruptly is not feasible. Ideally, it could commence with the implementation of a Voluntary Retirement Scheme (VRS). Alternatively, individuals could be allowed to take a leave of absence for a period of 5-10 years without pay, encouraging the departure of younger staff,” he said.
Fernando also stated that there were multiple ways to approach this situation. Generally, providing such an option may result in the departure of talented individuals. This is because those with valuable skills tend to have better opportunities elsewhere, leading them to leave first.
Fernando also listed the top three methods by which the Government could begin the process. One option is to conduct a management audit initially, assessing who must remain and identifying those who should depart. However, completing a comprehensive management audit is a year-long process, which could potentially complicate matters further.
“Most of the positions in the State sector have been filled by political appointees and they hold staff-grade positions. Therefore, I believe there is no need for a management audit for them since they are not decision-makers. Consequently, a VRS can be initiated for this group as the first step in the reduction process,” he said.
The second option is to merge some of the institutes and organisations to save space, as well as reduce overhead costs.
“In the third round, you can proceed to the next stage with a grace period. Once again, if someone is leaving, you announce that the right staff will be reduced to this amount. If someone is not willing to leave, then they will have to take the risk and the burden. Consequently, people will gradually start applying for the VRS or other jobs,” Fernando added.
He said that there could be additional packages as well. For example, if certain Government sector positions are considered, they often include perks like uniforms and other allowances. In addition to the salary, the maintenance costs for these benefits can become quite high. In such cases, a feasible solution could be to introduce a comprehensive package.
“This might involve the Government offering a minimum amount and, in return, employees can be allowed to seek additional employment elsewhere. This approach could be advantageous both from the Government’s perspective, as it represents a reduction in costs, and the individual leaving the job. They can explore other work opportunities, earn a salary, receive a Government allowance, and remain in the reserve cadre,” he said.
“The important thing is to start from somewhere,” Fernando concluded.
Burden on State coffers
While State sector employees have not received a salary increase in a long time due to the country’s economic situation, President Ranil Wickremesinghe addressed Parliament in the last quarter of 2023, outlining Budget 2024 themed ‘A Prelude to a Bright Future,’ and announced that public sector employees would receive a salary increase of Rs. 10,000 as part of the Cost of Living (COL) allowance.
“Expenses for the proposed salary increase will be paid through tax revenue,” Treasury Deputy Secretary R.M.P. Rathnayake told The Sunday Morning, adding that the hike was long overdue and had to be done due to inflation and economic changes.
As per the latest figures provided by the Ministry of Finance, it has been estimated that Sri Lanka necessitates a monthly financial allocation ranging between Rs. 90-95 billion to cover the extensive expenses associated with State salary disbursements. In addition to this, there is an extra financial commitment of Rs. 15 billion earmarked for comprehensive pension coverage.
Meanwhile, a spokesperson at the Ministry of Public Administration, Home Affairs, Provincial Councils, and Local Government stated that the ministry had appointed a committee to provide recommendations on allowing excess State sector employees to work in the private sector, especially in export and export-oriented agriculture sectors.
The spokesperson refused to provide further comments pertaining to the delay on this matter.
Approximately 19.1% of the overall workforce in Sri Lanka constitutes public sector employees, which has been highlighted as a significant burden on State coffers.
Currently there are 1.4 million public servants and 600,000 pensioners. Even a Rs. 100 salary hike would have a significant impact, underscoring the dire need for an efficient action plan.