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Sri Lanka to increase state worker salaries

ECONOMYNEXT – Sri Lanka is setting up a committee to decide broad salary increase for state workers within the next three months as part of moves to maintain ‘fiscal discipline’ Finance Minister Mangala Samaraweera said as train drivers struck work demanding a pay hike.

He said that a cabinet paper will be submitted next Tuesday to set up a commission for this purpose..

"Last week the Cabinet itself decided that a new Committee should be appointed to look into this matter, and they instructed the Finance Ministry to submit a cabinet paper to set up such a committee,” he said.

Samaraweera said that the committee would have three months to decide on the salary increase government employees should get, and how much funds should be allocated.

A government minister said earlier in the day that the state worker salary hike would be part of the 2019 budget.

Samaraweera said that the cabinet came to the decision after railway department engine drivers had demanded a salary increase.

However, if one segment of employees gets an increase, others such as doctors, engineers, accountants and nurses would be offended, he said.

“Next thing, they will say our salaries are below engine drivers, so increase. If that request comes it will be quite reasonable,” Samaraweera said.

An engine driver currently has a basic salary of 44,600 rupees, and with perks and overtime, take home over 200,000 rupees, he said.

“But their basic is 44,600 rupees and they want it to be increased to 56,205 rupees. That is why we want to look at the whole salary structure before agreeing on salary increase for one particular group.”





Samaraweera said that the pay hike is for fiscal discipline, since the government is not thinking of just one group of woerks.

“This is what we’re trying to impose, fiscal discipline, by not agreeing to these wildcat demands.”

“As a responsible government we know how to govern and how to balance our budget and we will do so within our means,” he said when questioned how the salary increase would affect fiscal discipline in the run up to Sri Lanka’s largest foreign debt repayment period over the next 5 years.

Central Bank Governor Indrajit Coomaraswamy last week said that if there is any fiscal slippage, the Central Bank would adjust monetary policy accordingly.

There is little fiscal space for the government to maneuver in, Coomaraswamy had said earlier this year. The government last gave a public sector salary increase of 10,000 rupees in 2015, when a populist budget nudged the country into a balance of payments crisis as soon as the new administration came to power.

In 2017, 46 cents of every tax rupee collected was used to pay salaries and pensions of state workers.

National elections are coming up in 2019.

But there had been no state salary hike for two years.

Sri Lanka’s central bank depreciates the currency and generates inflation making so-called cost-of-living the biggest political issue in the country requiring double digit salary hikes for people to just survive.

The idea behind permanent depreciation of the currency is to destroy real wages of export sector workers and make hard goods ‘competitive’ low wages allowing firms to avoid productivity increases.

However for the strategy to work, currency depreciation and inflation has to keep ahead of salary increments.

Though currency depreciation gives a subsidy to export sector workers, workers in all sectors also suffer losses of real wages.

Sri Lanka’s policy of unsound money is directly opposite of sound money policies followed by high performing stable East Asian nations.

The Singapore dollar was 1.36 to the US dollar in January 2015, when the currency administration came to power and is 1.36 to the US dollar in August 2018. Hong Kong which has an orthodox currency board has an exchange rate fixed at 7.8 to the US dollars since 1982.

The Korean won was 1110 to the US dollar in January 2015 and is 1129 in August 2018. The New Taiwan dollar which was 32 to the US dollar in January 2015 is 30.7 to the US dollar in August 2018.

The Sri Lanka rupee has fallen from 131 to the US dollar in January 2015 to 159 to the US dollar in August 2018.

However Trumpist Mercantilists in the US have been claiming (falsely) for decades that East Asia undervalued their currencies when the best performing currencies have been steadily appreciating or been fixed since the break of the Bretton Woods. (Colombo/Aug10/2018)

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