ECONOMYNEXT – Sri Lanka’s state agencies have been asked to cut spending, overtime and no money will be allocated for new hires ahead of a preparing a budget for 2021 as tax cuts and Coronavirus had reduced state revenues.
There will be no provisions for new hires in 2022, Ministry Secretaries and Department chiefs have been told by the Treasury in a circular.
The public sector consumed 84 percent of taxes collected up to April and salaries and wages have exceeded the increase in tax collections up to April.
Sri Lanka has been hiring tens of thousands of unemployed graduates in an already bloated public service and giving them lifetime salaries and pensions.
Finance Minister Basil Rajapaska had told cabinet that no new appointment letters will be given, cabinet spokesman Minister Ramesh Pathirana said.
Authorities have been printing money as bond auctions failed due to yield controls, triggering forex shortages.
Sri Lanka has now started allowing interest rates to go up which will help reduce money printing and forex shortages but bond auctions are still dysfunctional.
In order to reduce the corrective interest rate, the government has to reduce the deficit by cutting spending and raising new taxes.
However such moves are opposed by the so-called ‘anti-austerity brigade’ in most countries who advocate Keynesian stimulus, money printing and state expansion.
Cutting spending and raising taxes would hurt the public less than further steep falls in the currency and inflating prices, analysts have said.
Sri Lanka’s state workers union fearing salary cuts have already asked for a lockdown to be lifted so that private sector workers can go to work and generate taxes.
State agencies have been asked to reduce requests for overtime, use technology for online meetings instead of travelling at the cost of fuel and refreshments.
No requests should be made to lease new buildings and before extending leases, use of space in existing government buildings should be made.
Beneficiaries of welfare programs should be accurately identified and ineligible people excluded and programs of the central and provincial governments should be integrated.
Foreign funded projects on which commitments have been made should be completed fast.
Priority should be given to complete locally funded projects already started, and new projects without a completion date where commitments have not already been made will not be given allocations. (Colombo/Aug29/2021)