Sri Lankans should ask for single digit wage hikes: Treasury official

Nov 11, 2009 (LBO) – Sri Lankan workers should ask for to 3.0 to 5.0 percent annual wage hikes with the Central Bank targeting low inflation in the future, the island’s most senior Treasury official said.

The output of Sri Lanka’s people have largely appropriated by a top heavy state sector. Last year more than 50 percent of the taxes collected went for salaries and pensions of state workers. Many state enterprises are also heavily overstaffed and make losses.

From 2004, Sri Lanka was hit by 20 percent plus inflation, which economists have blamed on fiscal dominance of monetary policy. But from 2007, the Central Bank went on a determined campaign to put the inflation genie back in the bottle.

Consumer prices in Colombo rose to just 1.4 percent in the 12 months to October and Central Bank Governor Nivard Cabraal says prices would rise 3.5 percent this year and is planning to keep next year’s inflation at 5.0 percent.

“The [Central Bank] Governor has brought inflation down,” Jayasundera said. “I personally feel interest rates can be brought down further but the governor does not want inflation to creep up again.”

“If it (inflation) is 6.0 percent, interest rates should be 8.0 percent