- How Sri Lanka’s overpopulated State sector drains the Govt. budget
For years, successive governments in Sri Lanka have pledged to address the growing numbers in the State sector, yet the workforce remains as large as ever, consuming a considerable portion of the Government’s annual expenditure.
Despite persistent warnings about the financial strain, the Government is now preparing to introduce a substantial salary hike for public sector employees, further escalating concerns about the sustainability of an already bloated system. On the other hand, with the increasing cost of living, a salary hike becomes a necessity for the public sector.
Although the Government has repeatedly claimed that inflation is easing, the reality for many Sri Lankans tells a different story. The cost of living remains high, making a salary increase essential for public sector employees to afford basic necessities and stay above the poverty line. However, the question remains as to whether the State can afford such an expansion in expenditure, given the existing financial pressures and continued burden on taxpayers.
Numbers tell the story
Before discussing the need to increase public sector salaries, one must first examine the data in terms of State sector employees and salaries.
Sri Lanka, with a population of approximately 22 million, has consistently maintained a public sector workforce exceeding one million employees annually. This equates to roughly one public sector employee for every 22 citizens.
- In 2024, the Government allocated a sum of Rs. 6.98 trillion as total annual expenditure under the Budget, with Rs. 659.5 billion spent on public sector salaries in the first eight months of the year. If this trend continues, annual salary expenditure is projected to surpass Rs. 900 billion. With 1.17 million public employees, salaries account for approximately 9.45% of total expenditure.
- In 2023, public sector salaries cost Rs. 939 billion, comprising 17.55% of the total Government expenditure of Rs. 5.35 trillion. The workforce numbered 1.23 million, reflecting a gradual reduction in State employees compared to previous years.
- In 2022, despite 1.25 million public employees, salary expenditure stood at Rs. 956 billion, representing 15.99% of the Rs. 5.98 trillion total expenditure. The year was marked by economic challenges, which led to a freeze on salary increases and hiring restrictions.
- In 2021, with 1.28 million employees, the State spent Rs. 846 billion on salaries, which constituted 17.38% of the Rs. 4.87 trillion budget. This was a period of economic strain, where the Government struggled to manage fiscal deficits while maintaining public sector wages.
- During 2020, Sri Lanka’s total expenditure was Rs. 4.45 trillion, with Rs. 794 billion allocated for salaries. With 1.19 million public employees, salaries accounted for 17.84% of Government spending. The impact of the Covid-19 pandemic placed additional pressure on State finances.
- In 2019, the Government spent Rs. 686 billion on salaries, representing 17.15% of the total Rs. 4 trillion expenditure. The number of public sector employees stood at 1.22 million, showing stability in workforce size while salary expenses continued to rise.
- In 2018, public sector wages cost Rs. 626 billion, approximately 15.77% of the total Rs. 3.97 trillion expenditure. The workforce was 1.13 million, a decrease from previous years.
- In 2017, with 1.21 million employees, Sri Lanka spent Rs. 589 billion on salaries, comprising 16.97% of the total Rs. 3.47 trillion Government expenditure.
- In 2016, the public sector workforce numbered 1.17 million, and salary costs stood at Rs. 576 billion, comprising 18.58% of the Rs. 3.10 trillion expenditure.
- In 2015, 1.25 million employees received Rs. 562 billion in salaries, representing 17.56% of the Rs. 3.20 trillion budget.
- In 2014, the total expenditure was Rs. 2.66 trillion, of which Rs. 441 billion (or 16.58%) was allocated to the 1.31 million public sector employees.
- In 2013, the Government spent Rs. 393 billion on salaries, which accounted for 16.04% of the Rs. 2.45 trillion budget. The public sector workforce stood at 1.30 million employees.
Over the years, Sri Lanka’s public sector salary expenditure has comprised a large portion of total Government spending, consistently exceeding 15% of the budget.
There are multiple factors behind the allure of public sector employment in Sri Lanka. Job security, stability, regular performance reviews, annual increments, and bonuses make Government positions highly attractive.
Consequently, many graduates from State universities aspire to secure roles within the public sector. Additionally, political dynamics play a role; it is common for election supporters to be rewarded with Government jobs, as politicians often promise such positions to their backers.
Highest in the region
According to Verité Research, Sri Lanka’s public sector employment levels are among the highest in the South and Southeast Asia region. In 2023, 15% of the country’s eight million-strong workforce was employed in the public sector, encompassing Central Government, subnational units, and the military. Notably, the sectors of defence and public security alone account for one-third of all Government employees.
When compared to neighbouring countries with similar economic structures, Sri Lanka’s public sector is notably larger. Yet, even with an inflated workforce, State efficiency remains at a poor level.
Sri Lanka’s public sector efficiency has been a subject of concern, as highlighted by the World Bank’s Country Policy and Institutional Assessment (CPIA) for 2023, which rated the nation’s public sector management and institutions at 3.3 on a scale of 1-6, where 1 indicates low performance and 6 signifies high performance.
Figure 1, compiled using data from Verité Research, compares public sector employment as a percentage of total employment across various South and Southeast Asian countries with populations exceeding five million. According to the data, Sri Lanka has the highest share of public sector employment, with 15% of its total workforce employed by the Government.
Following Sri Lanka, Malaysia has the second-largest public sector employment share at 14%. Laos and Singapore both report 10%, making them the next highest in the region. Several countries, including Nepal, Thailand, the Philippines, India, and Indonesia, all have 9% of their workforce employed in the public sector. Afghanistan and Vietnam follow with 8%, while Pakistan stands at 7%.
The lower end of the spectrum includes Myanmar at 6%, while Cambodia and Bangladesh report the smallest public sector workforce shares at just 5%.
Not so high?
Former Deputy Governor of the Central Bank of Sri Lanka (CBSL) Dr. W.A. Wijewardena noted that the State sector included employees in Government-owned State plantations, which together accounted for approximately 250,000 people.
“If we consider only the Central Government, excluding these entities, the workforce is about 800,000 – not exceeding one million. The perception that the State sector comprises over 1.4 million employees arises when public corporations including those in the plantation sector are included in the calculation.”
However, when excluding these employees, as well as those working in State-Owned Enterprises (SOEs) like the Bank of Ceylon, People’s Bank, and the Sri Lanka Ports Authority, which employ a large number of people, the number of employees directly financed by the Government budget – the Central Government workforce – stands at around 800,000, according to Dr. Wijewardena.
When asked whether this still constituted a large number, he said: “In relative terms, not really, especially if you consider that previously, the total number, including at public corporations, was 1.4 million.”
However, when focusing strictly on the Central Government, which funds salaries through the national budget, the figure was significantly lower, he added.
“The cost of living has surged by approximately 100% between January 2021 and January 2025, making it increasingly difficult for public sector employees to manage daily expenses. At the same time, inflation has also increased Government revenue, which was previously around Rs. 1 trillion but has now risen to Rs. 4.5 trillion. Additionally, as imports recover, revenue from import duties will also increase.
“For instance, Sri Lanka Customs recorded a revenue of Rs. 1.5 trillion last year, though this was primarily due to rising import levels rather than improvements in efficiency. While high vehicle prices may restrict the number of car imports, overall Government revenue continues to grow due to inflation, necessitating some form of relief for public sector employees who have been significantly impacted by the rising cost of living.”
Need for a salary increase
As highlighted by ‘Market Mine’ last week, a closer examination of market data presents a stark contrast between official claims and the everyday reality faced by consumers. Data compiled from the Weekly Economic Indicators published by the CBSL tracks wholesale prices across major markets, including Pettah, the Narahenpita Economic Centre, and Dambulla, offering a clearer picture of recent price trends.
The prices of essential food items such as samba rice, kekulu rice, cabbage, carrot, pumpkin, brinjal, green chilli, potato, and coconut have all increased over the past three months. While some items, including beans, snake gourd, tomatoes, lime, red onion, big onion, dried chilli, red dhal, eggs, and white sugar, have seen modest price reductions, these declines have not been enough to offset rising costs elsewhere.
Three months ago, if a consumer had purchased 1 kg of each of these goods, excluding coconut and eggs, which are counted individually, the total cost would have been Rs. 4,622. Today, the same selection costs Rs. 5,358, underscoring the reality that any perceived relief from falling prices in select items has been outweighed by continued price hikes across the market.
According to data trends and patterns obtained from CEIC Data, while Government employees’ salaries have increased over time, as seen in the Nominal Wage Rate Index, their real income has actually decreased when considering the rising cost of living.
For example, if someone was earning Rs. 10,000 in 2016, their salary may have increased to Rs. 16,130 by December 2024. However, at the same time, the cost of everything – food, transport, rent, etc. – has risen much faster than their salary increase. As a result, what they could comfortably afford in 2016 is now much harder to afford in 2024, although their paycheck has technically grown.
The Real Wage Rate Index, which accounts for inflation, showed that Government employees today can buy far less with their salaries than they could a few years ago. In 2016, their wages had full value (index at 100), but by October 2024, their purchasing power had dropped to 71.033, meaning their salary has lost nearly 30% of its value.
Despite salary increases on paper, many Government workers are struggling financially. Their earnings have not kept pace with inflation, making it harder to afford even basic necessities.
Previous plans of reforming
Following Sri Lanka’s economic crisis, there were discussions on reducing the financial burden of State salaries by integrating public sector employees into the private sector.
The Ministry of Public Administration, Home Affairs, Provincial Councils, and Local Government appointed a committee to explore ways to allow State employees to transition into export and export-oriented agriculture sectors.
Additionally, in 2022, the National Chamber of Exporters of Sri Lanka (NCE) suggested a similar approach, urging the Government to allow public sector employees to take up jobs in the private sector to reduce the State’s wage bill. The NCE sent a proposal to the Prime Minister and the Ministry of Public Administration, stating that Sri Lankan exporters were willing to absorb Government employees to ease the burden on public finances.
The proposal recommended that all permanent public sector employees be allowed to apply for private sector jobs, except for those in law enforcement-related agencies such as the Police, Inland Revenue Department, Customs, and Excise Department, due to concerns over conflicts of interest. To facilitate this transition, the Government was advised to offer unpaid leave of up to 59 months, during which employees would work under a temporary labour contract in the private sector.
Despite these discussions on reducing public sector costs, such plans seem to have disappeared as the Government has now shifted its focus towards increasing State salaries instead of workforce reductions.
The Ministry of Public Security and Parliamentary Affairs has confirmed that Rs. 90 billion has been allocated in the 2025 Budget for public sector salary increases, signalling a continued commitment to maintaining a large Government workforce.
What does the future hold?
Minister of Labour and Deputy Minister of Economic Development Prof. Anil Jayantha Fernando stated that the Government was planning a comprehensive programme to enhance the efficiency of the State sector workforce.
“While many argue that Sri Lanka’s State sector is overpopulated at the lower levels, several institutions are actually facing staff shortages. We also have a shortage of teachers, so this issue needs to be addressed strategically,” he said.
He further noted that resolving this imbalance could not happen overnight, as the State workforce had grown over many years. While he urged the public to await further details in the upcoming budget, he confirmed that public sector salaries would be increased this year.
Public sector employees vs. salaries
Year (as of Q1)
Number of public sector employees
State salary expenditure
Total expenditure
2024
1.17 million
Rs. 659.5 billion for the first eight months
Rs. 6.98 trillion allocated in the budget
2023
1.23 million
Rs. 939 billion
Rs. 5.35 trillion
2022
1.25 million
Rs. 956 billion
Rs. 5.98 trillion
2021
1.28 million
Rs. 846 billion
Rs. 4.87 trillion
2020
1.19 million
Rs. 794 billion
Rs. 4.45 trillion
2019
1.22 million
Rs. 686 billion
Rs. 4 trillion
2018
1.13 million
Rs. 626 billion
Rs. 3.97 trillion
2017
1.21 million
Rs. 589 billion
Rs. 3.47 trillion
2016
1.17 million
Rs. 576 billion
Rs. 3.10 trillion
2015
1.25 million
Rs. 562 billion
Rs. 3.20 trillion
2014
1.31 million
Rs. 441 billion
Rs. 2.66 trillion
2013
1.30 million
Rs. 393 billion
Rs. 2.45 trillion
(Sources: Compiled using data published by the Department of Census and Statistics Quarterly Bulletins for Q1 of each year and CBSL and Ministry of Finance Annual Reports)
Note: It should be noted that there has been contradictory data in terms of employment figures
Figure 1: Public sector employment as a percentage of total employment (South and Southeast Asia)
(Sources: World Bank, International Labour Organization, and CBSL)
Note: Sri Lanka’s figures represent 2023 data, while figures for other countries are based on 2021 or later, except for Nepal (2017) and India (2019)