Crisis and the end of “cheap politics”
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While there is excess labour in the state sector, Sri Lanka recruits 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 programme, while I was there as a member of the interview panel. It’s customary to ask questions about the educational and professional background of the candidates.
I asked him: “What are you doing?” He answered: “I am a Development Officer.” I asked him again: “Where are you working as a Development Officer?” He named a particular government school in the Western Province, as his place of work.
His answer aroused my curiosity: “I know that there are development offices all over the country literally to develop the rural economies, divisional secretariats and many other government agencies. But I never knew that it has now gone to government schools too! Is this a new arrangement?”
He answered: “No sir, but I got it two years ago when the government provided jobs for 50,000 unemployed graduates! About 18,000 were allocated for the schools.” I asked him again: “So you are the person responsible for ‘developing’ your school; tell me a little bit about your duties and responsibilities”.
First, he laughed and then answered: “We don’t have any specific duty or responsibility as such other than attending to whatever the Principal asks us to do; that’s mostly clerical work, then helping teachers and, sometimes teaching work too in case a teacher is absent”.
As I noticed that he had mentioned four years of work experience, I asked him again about his previous job experience. This time his answer was even strange: “After my graduation, I joined a private company (he also named it) as a management trainee and then became a manager there; I left it two years later as I got this job in the school”.
Anybody would ask him as to why he left the job, and so I too asked the same question: “Why did you leave a management post to get a development officer job? I am sure your salary as a manager and your future career prospects were much higher than those with this!”
He was honest enough to explain his rationality: “Yes, but now I have more free time every day and, more holidays a month. After I go home my mind is totally free from the office burden; and I will have more time to do my own things. The government will make it a permanent position with a life-time pension”.
I turned my question in another direction: “Do you think that the private company you worked for would ever hire a graduate again?”
Job opportunities
The above may be just one of the similar stories of thousands of public sector employees of Sri Lanka. As the government or the politicians took over the task of giving jobs from the individual institutions, it has been customary for both educated and less-educated youth to seek the politicians to receive a job opportunity from the government.
The government has virtually failed to “create” productive jobs for the youth, but it continued to “provide” jobs for them regardless of the fact as to whether they have work to perform or not and, whether they have the required subject knowledge and skills or not; what matters is just a “certificate” to meet the entry criteria.
Thus, the public sector including all its public enterprises became the source of job opportunities; if there are no such opportunities, they can be created as in the case of the “development officer” post. What’s needed is just a government job, irrespective of its productive contribution to the economy.
Public sector employment statistics show that there were about one million public sector employees in the early 2000s; this has now increased closer to 1.5 million in net terms. Even the increase in Sri Lanka’s total labour force during this period was smaller than the increase in public sector employment.
Economic cost
The lack of accountability in the bulk of government’s job supply as a governance problem has cost too much to the Sri Lankan economy. As we have discussed on many occasions in this column, the “over-spending” problem has been a major contributory factor to the current economic crisis in Sri Lanka. It’s not just the simple wage bill that has to come from the tax revenue; including that, it’s a much deeper issue.
The near Rs. 845 billion wage bill cost of the government in the 2021 Budget accounts for nearly two-thirds of the government’s tax revenue. Even before the crisis began with the COVID-19 pandemic, the wage bill share in 2019 was about 40 per cent of tax revenue – an increase from about 30 per cent since the early 2000s. If the government keeps increasing the public sector employment, obviously, its share as well as the government’s future pension cost share would keep rising too.
It’s, however, not the whole story, as the contribution to the economy by an increase in unproductive public sector jobs has far-reaching consequences on the government’s fiscal operations and on economic growth, even though it has contributed to the government’s “over-spending” problem, because neither do these jobs generate any tax revenue. The resulting wage bill is bigger, but each employee receives a “smaller salary” which is below the income tax threshold.
A deeper issue is its potential contribution to the country’s production activities which are aggregated to calculate annual GDP. It is not only the problem that the unproductive government jobs do not make a “real” contribution to the GDP, but also it inflates GDP estimates. Since there is no tangible output for services such as “public administration”; such activities are usually estimated using the “costing” method; this means it’s the “cost of running public administration” that is counted as the contribution to GDP. In other words, when the salary bill goes up, GDP goes up too!
Non-tradable output
Here is the connection of the public sector employment expansion to the current economic crisis in Sri Lanka. We have repeatedly discussed the point that the current economic crisis of the country is a foreign exchange crisis. In other words, it’s an outcome of the weakening export trade along with the expansion of GDP, although it cannot be sustainable over a longer period of time!
Over the past 20 years, Sri Lanka made a remarkable growth in GDP, while it elevated the country from a low-income category to middle-income category, and even to upper-middle-income category. But here is the shocking news: Export earnings have steadily declined from 33 per cent to below 15 per cent of GDP during this period.
It’s because the Sri Lanka’s GDP growth has been primarily through the expansion of the “non-tradable” sector, while public sector job expansion was an important component of the non-tradable sector. The irony is that, how do we repay the foreign loans in dollars that have to be earned through exports, whereas our primary focus was on the expansion of non-tradable growth?
The government is grappling with the problem of how to pay even the salaries of the public sector now. Of course, reducing the over-staffed public sector and the swollen government’s wage bill as well as public sector reforms are solutions, but unpleasant options. In this context, what we may expect is “printing more money” which makes the public sector feel good, until the return comes back in multiplied pains.
Concluding remarks
There is one good thing originating from the crisis. The space for “cheap politics” that continued to cheat the electorate is over now! As the presidential and parliamentary elections are around the corner (in another two and half years’ time), the politicians and their parties have to present a credible economic plan to get the Sri Lankan economy out of the crisis and to place it on the path of prosperity; it also includes the question how to create productive jobs for the people of the country.
(The writer is a Professor of Economics at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk and follow on Twitter @SirimalAshoka).
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