No change in State sector wages in the year through September despite soaring costs

• Informal private sector employees saw their wages rising by 6.8% in the 12 months through September 2023

The official wage rate index for State sector employees showed that it hadn’t budged at all during the last 12 months, perhaps making the case for the substantial increase in the cost of living allowance for the public servants announced in the 2024 budget.

Accordingly, the official wage rate index compiled for the public sector employees stood at 133.1 index points in September 2023, the latest data available, unchanged from the level that stood a year ago when the country was in an economic turmoil with consumer prices running wild. The budget for 2024 presented last week announced Rs.10,000 increment to the cost of living allowance to Rs.17,800, effective from January 2024, but will be paid starting from April 2024.

While presenting the budget, President Ranil Wickremesinghe in his capacity as the Minister of Finance said the State sector hadn’t received a salary increment since 2015, referring to the Rs.10,000 salary increase they delivered under the good governance government in which Wickremesinghe was the Prime Minister. However, trade unions continue to demand a Rs.20, 000 salary hike.

The government under the existing International Monetary Fund (IMF) programme is making a tough balancing act, having to meet the latter’s high revenue targets while gradually cutting the overall budget deficit every year to a sustainable level below 3.5 percent of the Gross Domestic Product in a couple of years. 

While economists and analysts raised concerns if the substantial salary increase would again stoke inflationary pressures and make the path towards fiscal consolidation challenging, the government maintains that they would raise public sector salaries without affecting the fiscal balance. 
The government has allocated a thumping Rs.133 billion for the increase in the cost of living allowance for public servants and the pensioners who will receive an increase of Rs.2,500 to Rs.6,025. 

However, given the high cost of living, steeper fall in the rupee and higher taxes, what the budget proposed to both the public servants and the pensioners is nowhere near sufficient to return to their normal lifestyles. 
Private sector workers, although they were also significantly affected by the same issues, received some relief measures from their employers since the country plunged into an economic crisis last year. 

However, these measures were not adequate for them to maintain the normal standard of living they enjoyed before the crisis unfolded.
Despite inflation decreasing to single-digit levels according to official price indices, prices have not reverted to pre-crisis levels. Instead, they have risen by a minimum of threefold to fivefold over the last two years.
Meanwhile, according to the wage index, the informal private sector employees saw their wages rising by 6.8 percent in the 12 months through September 2023, more or less in line with the official consumer price indices.