Why we pay more to promote inefficiency

 The salaries have to be increased to meet the cost of living or to appreciate the efficient work, in other words to improve productivity

Recently Finance Minister Mangala Samaraweera stated the salaries of public servants doubled since 2015. He further said over the past five years, the Government has raised the salaries of public servants by more than twice when they were under the previous regime. He pointed out moreover a salary increase of this magnitude has never been offered by any previous Government in the country’s history. 

The salaries have to be increased to meet the cost of living or to appreciate the efficient work, in other words to improve productivity. We have a mechanism to pay cost of living based on the cost of living index to compensate for the inflation. 

Why should we increase salaries? 

There is no doubt the salary level of the public service in Sri Lanka is comparatively low when you compare with some of the developed countries. If you take a comparison in Asia, we are moderate. If we take an example in Singapore we find the salaries are high in Singapore but a minimum number of workers do a great amount of work within predictable time lines. This is the reason Singapore has come to the level of number one in the Asian global competiveness index whereas we are in the 85th position out of 137 countries. This has become one of the best reasons for Singapore to attract so much Foreign Direct Investments. 

Sri Lanka has rated as one of the worst countries when it comes to entering contracts and approvals. This is one of the most significant reasons, why we cannot attract foreign direct investments (FDI) in addition to unpredictable policy and tax changes. 

Is there any good reason to increase salaries?

The Doing Business Indicator graph (Figure 4) will give a clear indication with a comparison of few of our neighbouring countries (Singapore, Malaysia and Thailand) and why Sri Lanka needs to boost. 

Sri Lanka has dropped from last year’s 71st position to 85th in the Global Competitiveness Index (GCI) while neighbouring India emerged as the top ranked country in South Asia at 39th place.

Sri Lanka slips in the ranking to 85th, mainly due to a deteriorating institutional environment, lower goods markets efficiency and infrastructure that is assessed as less well-developed, according to the Global Competitiveness Report 2017-2018, which assesses the competitiveness landscape of 137 economies.

The report said macroeconomic stability needs to remain a priority for the Government, as the country continues to cope with high levels of debt and tries to restore a sound macroeconomic environment.

The Global Competitiveness Report 2018 said business confidence has been declining over the past two years. It noted that the Government managed to decrease the deficit and stabilise debt after the country entered assistance program by the IMF in 2016. “Yet, the burden of interest on debt remains high and currently amounts to most of the revenue collected by Government. Inflation also increased and forced the authorities to tighten monetary policy, with negative effects on credit,” it said.

The survey, which has been conducted annually, ranked the competitiveness of 138 countries based on 12 key indicators – the pillars of competitiveness – that collectively make up a comprehensive picture of a country’s competitiveness.

The 12 pillars are: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.

Sri Lanka’s rankings in the Global Competitiveness Index 2016/17 show that the macroeconomic environment (94), the labour market efficiency (131) and technological readiness (106) are the weakest indicators while ranking highest in health and primary education (43).

The most problematic factors for doing business were inefficient government bureaucracy policy, poor work ethic in national labour force, policy instability followed by restrictive labour regulations.

Doing business in Sri Lanka in 2019 got much easier according to the Word Bank’s annual report, investigating the regulations that enhance business activity and those that constrain it.

‘Doing Business 2019 – Training for Reform’ released recently presents quantitative indicators on business regulations and the protection of property rights that can be compared across 190 economies.

The good news is Sri Lanka advanced 11 notches in Doing Business 2019 index and ranked 100th with an Ease of Doing Business score of 61.22. 

A high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm. The rankings are determined by sorting the aggregate scores on 10 topics, each consisting of several indicators, giving equal weight to each topic.

The main reasons for us to improve our position here was some of the recent initiatives by the Government. The explanation of the report is as follows: 

“Sri Lanka made dealing with construction permits easier by launching a single window, increasing transparency by providing online access to building regulations and reducing the processing times to issue several building certificates. 

Sri Lanka made property registration easier by implementing a single window to streamline the process of delivering several certificates and increased transparency by providing online access to cadastral information.

Sri Lanka made paying taxes easier by introducing online systems for filing corporate income tax, value added tax and employee trust fund contributions.

Sri Lanka made enforcing contracts easier by introducing a pre-trial conference as part of the case management techniques used in court.”

In the South Asian region India showed a remarkable improvement in doing business by advancing 23 spots this year to rank at 77th place. Elsewhere in the region, Bhutan ranked at 81, Nepal ranked at 110, Maldives 139, Pakistan 136, Bangladesh 176 and Afghanistan at 167.

The economies with the most notable improvement in Doing Business 2019 are Afghanistan, Djibouti, China, Azerbaijan, India, Togo, Kenya, Côte d’Ivoire, Turkey and Rwanda. (World Bank, 2019)

There is a noteworthy improvement In the Logistic Performance Index (LPI) too. After garnering 2.7 in 2014, Sri Lanka posted an overall LPI score of 2.6 in 2018, ahead of the 2018 South Asian regional average score of 2.51. This brings the country at rank 94 out of 168 economies for 2018, compared to 89 for 2014. Sri Lanka’s best scores come from tracking and tracing (2.79), timeliness (2.79), and customs (2.58).

The reasons for the LPI overall improvement was listed under six core areas: (i) Efficiency of customs clearance process, (ii) quality of trade- and transport-related infrastructure, (iii) ease of arranging competitively priced shipments, (iv) quality of logistics services, (v) ability to track and trace consignments, and (vi) frequency with which shipments reach the consignee within the scheduled time. The scores for the six areas are averaged across all respondents and aggregated to a single score using principal components analysis. A higher score indicates better performance. 

According to the Global Competitiveness Report 2018 under Property Rights Quality of Land administration Sri Lanka rated as the worst performer and Singapore rated as the best performer. 

Burden of paying high salaries to unproductive Government servants

Always the Government salaries are increased purely to get a political advantage or to improve the goodwill to the ruling party or the opposition party to come to power. Sometimes the salary increases are election promises. As all you know the Yahapalana Government promised Rs. 10,000 salary increase to the Government servants. During the last budget the Finance Minister announced a Rs. 2,500 salary increase to the state sector workers and said Rs. 40 billion was allocated for this purpose out of the 2019 budget. 

The issue is who is going to pay the increased salary? The money has to come from the treasury by way of colleting direct and indirect taxes. This was paid by the businesses in the country and by the general public. In case there is not enough money to pay, the Government will start printing money and pay the salaries. The net result will be the higher inflation. 

Good cases of doing a good job 

We have a few case studies in Sri Lanka where some Government organisations are working efficiently and productively to deliver their goods and services to the public. The best one is the Immigration and Emigration Department of Sri Lanka. They are capable of issuing the passport within a day. If you submit the documents in the morning you can collect your passport in the evening. There is a special levy for the speedy delivery. Everyone feels very good about their service and the workers also have become very polite over the years and finally the client gets a quality efficient service. The department of Commerce is another organisation, issue the Country of Origin certificates (A Certificate) within a day. If you submit in the morning you can collect in the evening. 

Why we cannot pay a productivity based salary or an incentive to improve the income of the

Government servants

Considering the above examples if we really need, we can improve the organisations. This is not possible due to unwanted political interference and not having a clear policy to improve the productivity of the country. If Government declares 2015-2019 the salaries of public servants has doubled and by 2020 will increase up to 107% then the productivity also should improve by a similar percentage or more. We do not see this from any of the available statistics during this period. What we see is a deterioration of the services from the public servants to the general public of Sri Lanka. 

In such a scenario the politicians who take decisions to improve the expenditure of the country and the public servants who are not providing the expected output to the public both should be accountable and responsible for the downfall of Sri Lanka. 

We can largely use the technology to improve the speed and the quality of the services. We can use online submissions to cut down the delays and the corruption. 

Countries like Singapore have improved over the years and minimised the corruption using more technology. Today they have gone to the extent of using industrial robots to improve manufacturing and public services. 

Recently at the CA Sri Lanka SAFA Forum on ‘Role of Finance professionals in Combating Bribery and Corruption’, State Minister of Finance Eran Wickramaratne stated, “The greatest obstacle to economic development is corruption. Corruption and bribery undermines the rule of law, affects development activities and also promotes the bad governance. It has become a common place that it is so difficult to sometimes distinguish the corrupt behaviour and acceptable behaviour. Corruption and bribery have been entrenched in our governing institutions. Corruption is prevalent at all levels of Government and the society.”

This is a clear message that we have to clean the Government institutions. If we introduce more time based output targets and introduce incentives for them to improve their income then there is a chance that we can reduce the bribery and corruption. This can advance our ratings and make Sri Lanka a better place for us as well as for the foreign direct investors to look at Sri Lanka as a lucrative place.  

(The writer is an Economics Hons Graduate from the Sri Jayewardenepura University, Immediate Past President of the International Chamber of Commerce and the Vice President of the Federation of Chamber of Commerce and Industries Sri Lanka. He can be reached at [email protected].)