A profitable public service

The general view is that the public sector is more a curse than an economic blessing. Except for the many employed within its stagnant but safe confines, it is questionable how much it benefits the country as a whole and meets essential efficiency requirements to obtain public approval.

Since the Rajapaksa regime came into power, the numbers in public service have more than doubled, reaching 1.3 million as of December 2012. In other words, one in every 15 of the total population is now on the Government payroll. Most of the increases have been reported in security forces (Army, Navy, Air Force, Police and Civil Defence), education, and health services.

As the Pathfinder Institute pointed out in a recent report, there are no scientific studies to evaluate the need for and productivity of these public servants other than anecdotal stories. Almost all Sri Lankan governments have tended to be proud to proclaim that they have increased public services and employment therein, despite the fact that this was contributing to a fundamentally-flawed fiscal framework, which is now becoming increasingly unaffordable.

The report argues that when successive governments were unwilling or unable to introduce economic reforms that would increase private sector job creation, they have found the public sector to be a convenient employment creation agency. However, the macroeconomic instability arising from the current fiscal framework calls for a radical rethink of the traditional approach to the Government being the employer of first resort.

In recent years, total public expenditure has been about 22/23% of GDP, while revenue has been 14/15% of GDP, Pathfinder data insists. This imbalance between expenditure and revenue was sustained, in the past, due to the large volumes of grants and concessional loans (ODA) that Sri Lanka received when it was classified as a low-income country. Now that Sri Lanka has attained lower-middle-income country status, this deficit has to be financed through either borrowing at commercial interest rates or printing money. This cannot go on indefinitely.

Moreover, the result has been underemployment, mass-scale inefficiency, corruption, mismanagement, and possibly the root of it all – politicisation. A common sight before elections is the mass appointment letter handout done by the Government. Hopeful graduates and others will volunteer in the Government political campaign and go so far as to sacrifice their vote on the altar of public sector employment. This has meant that employees are recruited in the droves but not effectively used, resulting in bureaucracy stifling their potential.  The Pathfinder Institute suggests that because no consideration will be given by any sensible political leadership in the present context for retrenchment of Government employees, the Government should create a conducive environment for local and foreign private sector investment to generate well-remunerated employment, which reduces the attractiveness of less productive Government jobs.

Simultaneously, a Work Study should be undertaken to identify the over-manning in the public service and training and skills development programs should be formulated to incentivise workers to be gainfully employed elsewhere or venture into entrepreneurial initiatives. This will also relieve the pressure from the expenditure side of the Government Budget.

However, no program of public service restructuring will be sustainable in this country unless it is supplemented by a package of other reforms that generates rapid expansion of private sector activity.