ECONOMYNEXT – Sri Lanka’s private-sector workers absorbed the burden of the Coronavirus shock taking real and nominal wage cuts while keeping the economy ticking, as state workers continued to get salary hikes, data show.
“In the midst of the adverse impact of the COVID-19 pandemic, real wages of the employees
in the formal and informal private sectors showed an erosion whereas the real wages of the public
sector employees showed an increase in 2020 compared to the previous year,” Sri Lanka’s central bank said in its 2020 annual report.
“Nevertheless, the demand pressure arising from wages on the general price level remained subdued during the year.”
Sri Lanka’s private credit collapsed amid lockdowns, despite money printing. Credit started to pick up only in the third quarter.
Around the world the Covid-19 pandemic has demonstrated graphically that it was private citizens, working in retail shops, restaurants, export manufacturing, transport and distribution chains that really kept economies ticking providing taxes for state workers and the elected ruling class to engage in coercive acts.
As soon as private sector activities were curtailed, economies collapsed.
In Sri Lanka the state health services have worked hard, though coercive state agencies put controls on private sector activity, including in medical services and food supplies especially with price controls, disrupting supplies, critics have said.
Private sector workers salaries were slashed and many were laid off, as they took the entire economic adjustment, while state workers continued to get salary hikes.
“The formal private sector was adversely affected by the COVID-19 pandemic,” the central bank said.
“Accordingly, some firms had to revise salaries downwards as their cash flows were severely affected by the disruptions to their business activities.
“Further, a tripartite agreement was reached between the Ministry of Skills Development, Employment
and Labour Relations, the Employers’ Federation of Ceylon and trade unions on paying 50 per cent of the last paid basic salary or Rs. 14,500 per month, whichever was more favourable to the employee, where employees were required to stay at home due to pandemic conditions.”
In 2020 a wages board rate increase was given for those on minimum wages.
“Nevertheless, real wages of employees in the formal private sector decreased by 4.2 per cent in 2020 compared to 2019.”
Sri Lanka’s state sector salaries continued to rise though the current administration halted some of the salary hikes given by the previous Yahapalanaya administration.
Nominal wages of state workers also rose 9.2 per cent in 2020.
“This increase was due to the addition of a new non-pensionable monthly interim allowance of Rs. 2,500 with effect from 01 July 2019, and the final tranche of the special allowance and interim allowance to the basic salary, with effect from 01 January 2020.
“Accordingly, real wages of the public sector employees increased by 2.9 per cent in 2020 compared to last year.”
The ousted ‘Yahalapalanaya’ administration also destroyed real and nominal wages of private-sector workers to boost exports through wage destruction involving real effective exchange rate targeting, to profit producers without raising productivity at the expense of the working class, critics have said.
In 2020 the rupee continued to collapse amid money printed to finance state expenditure and more ‘stimulus’.
About 86 cents of every tax rupee collected went to pay salaries and pensions of state workers.
In 2015 large salary increments were given to state workers, driving up the public sector wage index by over 20 per cent.
As money was printed heavily to target short term interest rates in 2015 and the rupee busted from 131 to 151 to the US dollar in the next year, state workers were cushioned against the real salary destruction.
The opposition Samagi Jana Balawegaya slammed President’s Secretary P B Jayasundera, when he suggested that state workers contribute part of the salary, at least one day to ease the fiscal burden on the rest of the people.
The REER targeting administration was roundly defeated in a 2019 election. However, stimulus has continued in 2020, creating more balance of payments trouble.
Sri Lanka’s United National Party also started the practice of giving tax fee vehicles to legislators, while taxing ordinary people at high rates.