The Sri Lankan Treasury is facing a serious financial challenge as it evaluates the feasibility of increasing public sector salaries in the upcoming budget. With the rising cost of living and increasing pressure from trade unions, the government is considering a salary hike, but the sheer financial burden of such a move has raised concerns about how it will be funded.
If salaries are increased by Rs. 25,000 per month for more than a million public sector employees, the government will need to allocate nearly Rs. 400 billion annually. Even a more modest increase of Rs. 10,000 per month would require approximately Rs. 160 billion per year. Given the country’s existing fiscal constraints, foreign debt obligations, and budget deficit, government officials are struggling to identify funding sources for the proposed increase.
One of the most direct solutions being considered is an increase in taxation. Raising VAT rates, expanding tax brackets, or introducing new levies on goods and services could help generate the necessary revenue. However, this could also add pressure on consumers and businesses already struggling with economic hardship.
Another option is reducing government spending, which would involve cutting back on non-essential projects, subsidies, and administrative costs. While this could free up some funds, reducing expenditures in crucial sectors such as education, healthcare, and infrastructure could have long-term negative consequences.
Seeking financial assistance from global lenders such as the International Monetary Fund (IMF), World Bank, or Asian Development Bank is also under discussion. However, borrowing from these institutions often comes with stringent conditions, including austerity measures and economic reforms that could impact public services and state welfare programs.
The government is also exploring ways to expand its revenue base through foreign direct investment (FDI), privatization of underperforming state-owned enterprises, and increased excise duties on high-consumption goods like alcohol, tobacco, and fuel. Encouraging new investment opportunities and economic activities may help generate additional revenue over time.
There is also speculation that the government might consider downsizing the public sector workforce to reduce salary expenses. However, this would be a highly controversial move and would likely face strong resistance from trade unions and public sector employees, potentially leading to mass protests and unrest.
The proposed salary hike is a politically sensitive issue, with trade unions and government workers demanding urgent relief amid economic difficulties. Failing to implement a satisfactory salary increase could lead to labor strikes and disruptions across key public services. However, if the government proceeds with a salary increase without a clear financial strategy, it could trigger inflation, force excessive borrowing, and worsen the national budget deficit, ultimately destabilizing the economy.
While discussions are ongoing, the Treasury is under pressure to finalize a decision before the upcoming budget announcement. The government is expected to consult with economic experts, trade unions, and policymakers to find a balanced approach that provides wage relief to public sector employees without compromising fiscal stability.
