The current minimum basic salary in the Sri Lankan public sector stands at Rs. 24,250. Budget 2025 proposed an increment of Rs. 15,750, increasing the basic salary to a maximum of Rs. 42,775, with implementation slated for 1 April.

The Sunday Morning learns from the Treasury that Government sector institutions had been instructed to finalise the public sector salary increment on or before 10 April, if feasible.

The Treasury noted that with the exception of a very small number of institutions facing challenges in converting salaries, approximately 99% of salaries had already been settled and paid to the intended recipients. Furthermore, the Treasury indicated that the implementation and dissemination aligned with the structure outlined in the Budget.

Increment structure and implementation

Budgetary plans for 2025 detailed an increase in the minimum monthly basic salary to Rs. 40,000. This adjustment incorporates the existing ad hoc interim and special allowances into the basic pay, resulting in a net minimum wage increase of Rs. 8,250. 

The 2025 Budget also proposed an 80% increase in the annual salary increment value, raising the minimum from Rs. 250 to Rs. 450. Plans also involve proportionally adjusting the annual salary increments for all public sector employees.

According to the Budget presentation, this proposed Rs. 15,750 increase in the minimum monthly basic salary is intended to encompass several segments, including judicial services, public corporations, statutory boards, university staff, and tri-forces officers, consistent with other public sector employees.

The total projected Government expenditure for these salary increments amounts to Rs. 325 billion, to be implemented gradually in three phases. Starting in April, a portion of the total net salary increase, specifically Rs. 5,000 plus 30% of the remaining amount, was scheduled for distribution. 

The remaining 70% is proposed to be disbursed in January 2026 and January 2027. Consequently, an allocation of Rs. 110 billion is proposed for these salary adjustments in 2025.

The circular titled ‘Revision of Salaries of the Public Service as per Budget Proposals 2025,’ issued on 25 March, specifies that the actual payment of salaries would commence on 1 April. 

The circular outlines the salary increase as follows. The salary difference between the pay received on 31 December 2024 and the new salary effective 1 January 2025 is to be determined in accordance with the circular. The net salary increase is calculated by subtracting the monthly interim allowance of Rs. 2,500 and the monthly allowance of Rs. 5,000 from this calculated difference. 

Based on this net increase, an officer will receive Rs. 5,000 plus 30% of the increased amount from 1 January 2025. From 1 January 2026, the entitlement will be Rs. 5,000 plus 65% of the increased amount. The full net salary increase will be effective from 1 January 2027. 

Accordingly, salaries are calculated in relation to each post/class/grade within each service category.

Speaking to The Sunday Morning, Deputy Minister of Labour Mahinda Jayasinghe confirmed that this salary hike had been fully implemented at present.

For the private sector, a Cabinet decision has been made to increase the basic salary to Rs. 27,000 starting in April this year and further to Rs. 30,000 in January next year.

The Deputy Minister emphasised that the rates proposed in the Budget remained consistent in their implementation. He noted that comparing the April 2025 salary with the December 2024 salary would clarify the increment, revealing that certain sectors within the workforce had experienced a significant salary increase when assessed in this manner.

He also explained that the Government’s objective behind the basic salary increment was to cultivate a productive and skilled public service.

“Generally, the public is not entirely satisfied with the performance of the public sector due to various factors. The Government sector is now granted considerable independence, and the Government expects it to function with integrity, lawfulness, and the proper decorum it warrants, aiming for maximum productivity,” he said.

Jayasinghe further noted that the decision to increase salaries for the public sector arose from the necessity to establish a productive and efficient Government workforce, which was fundamental for economic development.

Implementation compatible with proposals

Speaking to The Sunday Morning, University of Colombo (UOC) Department of Economics Professor Priyanga Dunusinghe noted the compatibility between the proposed salary structure and its implementation in the public sector.

He highlighted that different levels of service existed, with certain sectors, particularly upper-level officials, experiencing a substantial increase, while other categories did not receive a similar degree of increment.

According to the proposed structure, the total salary increase for the public sector is calculated over three key phases until 2027, allocated for each year until then. There is a deferred payment aspect, where the full increment will not be realised until 2027.

Prof. Dunusinghe explained that a significant number of staff were employed on a temporary basis, especially within the university sector. As temporary staff typically work for two-year terms, certain officials would receive payment as deferred compensation.

In 2018, the Government spent Rs. 626 billion on public sector salaries, representing approximately 15.77% of the total Government expenditure of Rs. 3.97 trillion. The number of public sector employees was around 1.13 million. 

In 2024, despite economic challenges and the country’s inflation rate, Government expenditure on public sector salaries amounted to Rs. 659.5 billion in the first eight months of the year. As a proportion of Gross Domestic Product (GDP), the wage bill decreased from 4% in 2022 to 3.4% in 2023, subsequently increasing to 3.6% in 2024.

Commenting on wage bill rates and levels, Prof. Dunusinghe explained that maintaining the wage level below the 2018 level in real terms would pose a significant challenge in attracting skilled labour to the public sector. He emphasised the critical need to address this issue seriously.

“The Government has not indicated whether this particular salary increase will restore real wage levels to those of 2018-2019. It is my understanding that the payment public sector employees will receive in 2027 will still be below the real wage levels of 2018,” he said.

He further explained the necessity for increments to align with the demand for skilled labour.

“We have observed a lack of qualified applicants for employment opportunities advertised in the university sector. Consequently, attracting skilled labour will remain difficult unless the Government can secure opportunities for further salary increments,” he noted.

Presenting a potential solution, Prof. Dunusinghe highlighted the need to downsize the public sector workforce, followed by a proper cadre revision. He noted that if the current situation persisted, the state of the public sector workforce would be extremely unsatisfactory, and efforts at recruiting workers at existing salary levels would likely fail to attract the required skill and productivity levels.

Commenting on the affordability of the proposed salary increase, he noted that if the Government could sustain the expected revenue generation levels with the existing tax rates, it would be able to afford this wage increase.

A preferable method of implementation 

University of Peradeniya Department of Economics and Statistics Professor Wasantha Athukorala also highlighted the compatibility between the proposed structure and its implementation, noting only marginal differences between the Budget presentation and practical implementation. 

He observed that the salary structure involved the addition of several allowances to the basic salary, resulting in a significant increase in this salary, which many recipients appreciated. He also noted that many individuals had received the salary increment in April.

Sri Lanka experienced a substantial surge in inflation, reaching all-time highs in 2022 and partly in 2023. In 2024, however, headline inflation, as measured by the Colombo Consumer Price Index (CCPI), remained below the Central Bank’s target of 5%.

According to Prof. Athukorala, salary increments should ideally reflect the country’s inflation rates. He pointed out how inflationary levels in 2022 and 2023 led to exorbitant increases in commodity prices. 

Consequently, while this particular salary increase is insufficient to fully compensate for these inflation levels, the Government’s expenditure capacity is constrained by the high wage bill. He noted that, considering all these factors, the Government had provided the maximum possible increase.

The Government has adopted a distinct method for revising the salary structure, differing from previous wage increment structures that involved adding a fixed amount to the wage bill. The rates of change in the distribution of the increment vary based on the profession.

According to Prof. Athukorala, while this method of calculation and implementation is preferable, increasing salaries without addressing the low levels of productivity and efficiency in the public sector system will place an additional burden on the economy, particularly on the poor.  

He explained that a significant portion of Government revenue originated from indirect taxes, to which all citizens were subject. Furthermore, he stressed that the public sector faced two primary issues, namely skilled labour shortages and a mismatch between skills and employment opportunities. 

Budget 2025 does not address productivity or efficiency issues plaguing the public sector, and salary increments without structural revisions and reforms to tackle these issues will not lead to effective development.

Addressing sustainability concerns  

Meanwhile, Frontier Research Head of Macroeconomic Advisory Chayu Damsinghe noted that the proposals made in the Budget and subsequently finalised were broadly consistent with the Government’s fiscal pathway.

“The proposals made are likely to help consumer capacity to at least some extent. However, currently, even these factors will likely be overshadowed by the global environment. For instance, if oil prices fall and Sri Lankan energy prices fall, that might be more impactful and vice versa,” he said.

Meanwhile, Prof. Dunusinghe emphasised that global trade dynamics might pose a threat to financing wage bill increments, potentially necessitating a reduction in capital expenditure. This is because potential tax concessions to exporters could affect the achievement of expected tax revenue, especially given that the anticipated tax revenue from vehicle importation has not been realised.

“I don’t think that the Government is in a position to provide all that was promised in terms of capital expenditure, a common characteristic observed in several previous governments as well,” he said. He noted that solutions must be addressed to mitigate these potential risks to expenditure capacity in order to ensure long-term implementation of the salary increments.