Crisis and the end of “cheap politics” | Print edition

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While there is a labor surplus in the public sector, Sri Lanka is recruiting Chinese and Indian workers due to a shortage in this sector.

Nuwan was present for an interview as he had applied for a postgraduate degree program, while I was there as a member of the interview panel. It is customary to ask questions about the educational and professional background of the candidates.

I asked him, “What are you doing?” He replied, “I am a development worker. I asked him again, “Where do you work as a development worker?” He named a particular government school in the Western Province as his workplace.

His answer aroused my curiosity: “I know that there are development offices all over the country literally to develop rural economies, divisional secretariats and many other government agencies. But I didn’t know that it was now also in public schools! Is this a new arrangement? »

He replied, “No sir, but I got it two years ago when the government provided jobs for 50,000 unemployed graduates! About 18,000 have been allocated to schools. I asked him again: “So you are the person responsible for the ‘development’ of your school; tell me a bit about your duties and responsibilities”.

First he laughed and then replied, “We have no specific duty or responsibility as such other than to take care of whatever the principal asks us to do; it’s mostly office work, then helping the teachers and sometimes also teaching in the absence of a teacher”.

As I noticed that he had mentioned four years of professional experience, I asked him again what his previous professional experience was. This time, his answer was even strange: “After my diploma, I joined a private company (he also named it) as a management trainee, then I became a manager there; I left it two years later because I got this job at school”.

Anyone asked him why he left the job, so I too asked the same question: “Why did you leave a management position to obtain a position as a development officer? I’m sure your salary as a manager and your future career prospects were much higher than those with it!

He was honest enough to explain his rationality: “Yes, but now I have more free time every day and more holidays per month. When I get home, my mind is totally free from the burden of the office; and I will have more time to do my own things. The government will make it a permanent position with a pension for life.”

I steered my question in another direction: “Do you think the private company you worked for would hire a graduate again?”

Job Opportunities

The above is perhaps just one of the similar stories of thousands of public sector employees in Sri Lanka. When the government or politicians have taken over the task of giving jobs to individual institutions, it is customary for educated and less educated youngsters to seek out the politicians to receive a job opportunity from the government.

The government has had little success in “creating” productive jobs for young people, but it has continued to “provide” them with jobs whether or not they have a job to do and whether or not they have the and the skills required. or not; what matters is just a “certificate” to meet the entry criteria.

Thus, the public sector, including all its public enterprises, has become the source of employment opportunities; if such opportunities do not exist, they can be created as in the case of the position of “development officer”. What is needed is just a government job, regardless of its productive contribution to the economy.

Public sector employment statistics show that there were approximately one million public sector employees in the early 2000s; this has now risen closer to 1.5 million in net terms. Even the increase in Sri Lanka’s total labor force over this period has been less than the increase in public sector employment.

Economic cost

Lack of accountability in most of government job provision as a governance issue has cost the Sri Lankan economy too much. As we have discussed many times in this article, the problem of “overspending” has been a major contributing factor to the current economic crisis in Sri Lanka. It is not just the mere wage bill that must come from tax revenues; including that, it’s a much deeper issue.

Rupees close. The government’s $845 billion payroll cost in the 2021 budget accounts for nearly two-thirds of the government’s tax revenue. Even before the onset of the crisis with the COVID-19 pandemic, the wage bill share in 2019 was around 40% of tax revenue – an increase from around 30% since the early 2000s. If the government continues to increase employment in the public sector, of course, its share as well as the future share of the cost of government pensions will also continue to increase.

This is not all, however, as the contribution to the economy of an increase in unproductive public sector employment has far-reaching consequences for government fiscal operations and economic growth, even though it has contributed to “overspending”. “of the government” problem, because these jobs do not generate tax revenue either. The resulting payroll is higher, but each employee receives a “small salary” below the income tax threshold.

A deeper issue is its potential contribution to the country’s productive activities which are aggregated to calculate annual GDP. It’s not just the problem that unproductive government jobs don’t “really” contribute to GDP, but it also inflates GDP estimates. Since there is no tangible result for services such as “public administration”; these activities are generally estimated using the “cost” method; this means that it is the “operating cost of public administration” that is counted as a contribution to GDP. In other words, when the wage bill increases, the GDP also increases!

Non-marketable production

Here is the link between the expansion of public sector employment and the current economic crisis in Sri Lanka. We have repeatedly discussed that the country’s current economic crisis is a currency crisis. In other words, it is the result of weakening export trade as well as expanding GDP, although this may not be sustainable over a longer period of time!

Over the past 20 years, Sri Lanka has recorded remarkable GDP growth, while moving the country from a low-income category to a middle-income category, and even an upper-middle-income category. But here’s the shocking news: export earnings have steadily declined from 33% to less than 15% of GDP during this period.

This is because Sri Lanka’s GDP growth was mainly through the expansion of the “non-tradable” sector, while the expansion of public sector employment was an important component of the non-tradable sector. The irony is, how do we repay the foreign dollar loans that must be earned through exports, when our main objective was the expansion of non-tradable growth?

The government is grappling with the problem of how to pay even public sector salaries now. Of course, reducing the overstaffed public sector and the bloated government wage bill as well as public sector reforms are solutions, but unpleasant options. In this context, we can expect to “print more money” which is good for the public sector, until the return returns in multiplied pains.

Final remarks

There is a good thing that comes from the crisis. The space for the “cheap politics” that continued to deceive the electorate is over! As presidential and parliamentary elections approach (in two and a half years), politicians and their parties must present a credible economic plan to lift the Sri Lankan economy out of crisis and put it back on the right path to prosperity; it also includes the question of how to create productive jobs for the people of the country.

(The author is a professor of economics at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk and follow @SirimalAshoka on Twitter).

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