A Prerequisite for Sustainable Recovery
As Sri Lanka embarks on the arduous path from economic crisis to recovery, it must confront one of its most deeply entrenched challenges, the inefficiencies within its expansive public sector. Though signs of macroeconomic improvement are beginning to surface, these alone will not lead to long-term transformation. What is needed is a bold reform agenda, rooted in institutional efficiency, fiscal prudence, and a fundamental restructuring of public sector employment and wage policy.
The public sector plays a significant role in the Sri Lankan economy. As of 2022, it employed 15 percent of the total labour force and 35 percent of all formally employed individuals. These figures surpass global averages, underscoring the state’s disproportionately large footprint in national employment. Yet this massive public workforce has not translated into commensurate productivity or service delivery outcomes. The sector consumes around 19 percent of GDP in public expenditure and 3 percent in wage payments, substantial commitments for an economy grappling with limited fiscal space and a fragile recovery.
For decades, successive governments have expanded the public sector workforce, often for political expediency rather than administrative necessity. This expansion has created a bloated bureaucracy with misaligned incentives, uneven distribution of skills, and a lack of performance accountability. With public salaries now absorbing a considerable portion of fiscal revenue, the government has been compelled to freeze wage increases temporarily, despite mounting demands from public employees and unions. The question now is not just whether salaries should increase, but whether the size and structure of the public sector is sustainable in its current form.
Crucially, productivity within Sri Lanka’s public sector remains difficult to measure. Unlike the private sector, which is driven by profit motives and market competition, public institutions operate in complex environments where output is harder to quantify. Despite these measurement challenges, global studies generally show the public sector lags behind the private sector in productivity growth. In Sri Lanka’s case, this productivity gap is particularly concerning given the country’s urgent need to do more with less.
The debate around whether the government deserves a pay rise is thus inseparable from the larger question of reform. A wage increase, without corresponding performance improvements and institutional restructuring, risks igniting a wage-price spiral that would undermine macroeconomic stability. Fiscal discipline, not populist appeasement, must guide wage policy in this critical period.
To address this, Sri Lanka must first rationalise its public workforce, not by indiscriminately slashing jobs, but by realigning roles, eliminating redundancies, and improving skill matching. Many ministries and departments are overstaffed in administrative roles yet suffer from severe undercapacity in frontline service delivery. Better deployment and performance-based incentives can help bridge this mismatch.
Second, public sector wages must be linked to performance, efficiency, and service outcomes. Introducing a structured pay scale that rewards results rather than tenure can create incentives for innovation and accountability. Equally important is the need for digital transformation within the sector. Embracing e-governance can reduce administrative burdens, streamline processes, and free up human resources for more strategic functions.
Third, the government must undertake a comprehensive review of its employment framework to determine the optimal size of the public sector. International benchmarks suggest that the size of government alone does not determine effectiveness, it is the quality of governance, the alignment of incentives, and the strength of institutional frameworks that matter most. In Sri Lanka’s context, this means focusing on lean, competent, and tech-enabled service delivery rather than expanding headcounts to appease political constituencies.
Finally, the state must improve its role as a steward of national development, particularly in monitoring, incentivising, and allocating resources. The delivery of essential services, from health and education to infrastructure and social protection, hinges on a well-functioning public sector. Without reforms to restore productivity and credibility, Sri Lanka risks squandering the momentum of economic stabilisation.
At this crossroads, rationalising public sector employment is not just a technical policy decision—it is a political and economic necessity. The future of the country depends on whether it can build a leaner, smarter, and more accountable public administration. The road to recovery is long, but with structural reforms at its core, Sri Lanka can transform today’s crisis into tomorrow’s opportunity.
