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Sunday May 22nd, 2022

Sri Lanka state workers ask to lift lockdown over salary cut fears

PRIVATE CUT: Real salaries of both formal and informal workers had already fallen in 2020 reducing imports and the current account deficit, while state workers got increments.

ECONOMYNEXT – Sections of Sri Lanka’s state workers are calling for a Coronavirus lockdown to be lifted as ministers warn about difficulties in paying salaries, with the tax generating private workers and self-employed no longer able to engage in productive work.

While private sector workers’ salaries were cut when lockdowns began in 2020 and they have been restored only in some cases state workers have got their salaries on time every month.

Preventing State Salary Lockdown

“Locking down the country is not the only solution,” Sumith Wijesinghe, Secretary, National Center for Progressive Trade Unions that is linked to the ruling Sri Lanka Podujana Peramuna said.

“So we ask the government to re-open the country as soon as possible and give the strength and life to the economy.

“If the resources continue to dwindle we have clearly identified that the state worker is in danger. So it the responsibility of the working class to make sure that the economy operates.”

In 2020, the state worker salary and pensions bill was equal to 86 percent of tax collections, leaving little money for any other expense.

When money is printed to pay salaries and they buy goods in the market, including items like Dhal, importers will try use the new money to replenish stocks.

However, when they go to banks to get dollars with the printed money, there is no foreign exchange, creating a ‘shortage’.

In 2020 the central bank printed enough money to trigger a 2.3 billion rupee deficit in the balance of payments or a fall in net international reserves which are used to redeem the printed rupees.

In 2021 also a similar amount had been lost so far as over 600 billion rupees were printed.

Analysts have said that Sri Lanka has to raise interest rates, abolish a ceiling rate on government securities to make Treasury bill auctions successful and prevent the printing of money through failed auctions.

A cut state spending and the deficits will reduce the required corrective interest rate to a manageable level.

A reversal of the damaging value added tax made in December 2019 will also reduce the corrective interest rate to make debt auctions successful and prevent borrowings through the central banks’ overnight window, which is the other main source of money printing and forex shortages.

Big Bill

Trade Minister Bandula Gunewardene this week warned that paying full salaries may not be possible going forward.

“For one and a half years the government has paid state worker salaries without cutting,” Minister Bandula Gunewardene said in an interview in Sri Lanka’s Derana Television.

“Sometimes if there is a situation where salaries cannot be paid, and there is no revenue, there is a chance that it can happen.

“That is why the government is saying that we cannot lockdown. President (Gotabaya) Rajapaksa also said that we will have to make sacrifices if there is a long lockdown.”

Sri Lanka’s private sector workers already suffered salary cut in 2020 as the Covid hit company revenues. Tourist sector workers in particular saw their incomes fall which will then lead to a fall in imports.

State workers however were given increments in 2020 with printed money.

For many years the elected ruling class has favoured state workers and taxed private workers heavily.

At one time state workers were completely free of income taxes, including inland revenue officials who collected the taxes from the people.

The last administration gave steep salary hike to state workers, raised taxes and also depreciated the currency by trying to do output gap targeting and real effective exchange rate targeting.

Opposition leader Sajith Premadasa raised a hue and cry when government officials called for a small voluntary salary cut of state workers in 2020.

However, the rupee has since fallen sharply as money was printed for salaries and other expenses.

Depreciation of the currency hits the real salaries of all workers not just state workers.

However Media Minister Dulles Allahapperum said there was no move to ‘forcibly’ cut state salaries but ruling party politicians were already taking voluntary salary cuts.

“No politician in the government has proposed for an employee salary cut in private or government sector but they have asked us about that,” Alahapperuma told reporters Tuesday.

“From the day we started the Covid fund, every cabinet minister had given 10,000 rupees monthly. Also chairmen of Pradeshiya Sabhas do that as well continuously as a party.”

“Therefore, no action will be taken to make a fund forcefully. I deny all those allegations.” (Colombo/Aug25/2021)

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