In the 12 months leading up to September 2023, informal private sector employees experienced a notable surge in wages, witnessing a 6.8% increase. This contrasts starkly with the official wage rate index for state sector employees, which remained unchanged over the same period. This divergence raises questions about the announced substantial increase in the cost-of-living allowance for public servants outlined in the 2024 budget.
The official wage rate index for public sector employees, standing at 133.1 index points in September 2023, showed no movement from the previous year. The 2024 budget, presented recently, disclosed a Rs.10,000 increment to the cost-of-living allowance, bringing it to Rs.17,800, effective from January 2024 but payable from April 2024.
President Ranil Wickremesinghe, in his capacity as the Minister of Finance, justified the increase by stating that the state sector had not received a salary increment since 2015, referencing the Rs.10,000 raise implemented under the good governance government in which he served as Prime Minister. However, trade unions persist in demanding a Rs.20,000 salary hike.
Balancing under the existing International Monetary Fund (IMF) program, the government faces the challenge of meeting high revenue targets while gradually reducing the overall budget deficit to a sustainable level below 3.5% of the Gross Domestic Product in the coming years.
Concerns raised by economists and analysts about potential inflationary pressures resulting from the substantial salary increase are countered by the government’s assertion that public sector salaries can be raised without compromising fiscal balance. A substantial Rs.133 billion has been allocated in the budget for the increase in the cost-of-living allowance for public servants, with pensioners also set to receive an increase ranging from Rs.2,500 to Rs.6,025.
Despite these adjustments, the proposed budget falls short of addressing the significant challenges posed by the high cost of living, a depreciating rupee, and increased taxes. Private sector workers, though granted relief measures by their employers during the economic crisis, still struggle to maintain their pre-crisis standard of living.
Inflation, as per official price indices, has decreased to single-digit levels, yet prices have not reverted to pre-crisis norms, escalating by a minimum of threefold to fivefold over the past two years. The wage index reveals that informal private sector employees experienced a more or less aligned 6.8% wage increase in the twelve months leading to September 2023, reflecting the trends in official consumer price indices.
