The Central Bank, predictably using restrained language, has in its Annual Report for 2007 presented to President Mahinda Rajapaksa (in his capacity of finance minister) drawn attention to a matter that the people of this country are too well aware of – that our public service which gobbles up a lion’s share of government revenue is bloated and unproductive. The bank, of course, has not accused successive political establishments of providing jobs for their boys at taxpayer expense by stuffing the public sector as some journalistic spin suggested. But the implications of the words used in the report are self- evident.

This point has been made by the bank in the context of reporting a favourable economic development: Unemployment in the fourth quarter of last year had reached the lowest ever recorded level, it noted. But it has categorically said in this regard that "unless labour productivity is improved substantially,’’ there is a "potential hindrance’’ to future higher growth prospects. The report points out that the expansion of the economy in recent years, together with a sharp rise in public sector recruitment had led to a significant reduction in the unemployment rate which was down to 6% at the end of last year from 7.7% in 2005. In accordance with election pledges made, obviously with a view to winning votes, public sector jobs were offered to party supporters following President Mahinda Rajapaksa’s election victory in November 2005. This has been the case after previous elections too and is now the rule rather than the exception.

As is too well known, politicians interfere in public sector recruitment and such intervention, on behalf of supporters, include creation of new jobs. Too often there is no work or not enough work for the new recruits and they, in effect, are virtually on a dole. The tab for this is picked up by the taxpayer, and such taxpayers contrary to the belief of many of the few hundred thousands who pay income tax, are all the people of this country including the desperately poor and the unemployed. Direct taxes like income tax, which far too few of those liable pay in any case, accounts for only a small proportion of the government’s tax revenue which comes from general taxes like VAT, customs duty and many more. As a famous newspaper editor of yesteryear once said, "you are paying a tax every time you light a match or flush a toilet.’’

The Central Bank has unequivocally pointed out that recruitment to the public sector on an ad hoc basis, as is too often the case we would add, "and the availability of non-performance based benefits in the public sector not only discourage unemployed youth from joining the private sector, but also encourage those already engaged in the private sector to join the public sector.’’ The bank surely would not have said so in the absence of some empirical data. It would know that its governor, for one, who was a skilled accountant and management consultant in the private sector, opted for his current public service appointment though we would not say this decision was influenced by the availability of non-performance based benefits in that job! But jokes apart, the Central Bank and its politically appointed head who is sometimes accused of not being independent, must be complimented for its plain speaking on this subject.

"Increasing public sector employment not only leads to overstaffing of public services, resulting in higher underemployment and higher recurrent expenditure to government, but also creates a shortage of workers in the private sector,’’ the report has said. "Hence, it is necessary for the government to formulate an effective recruitment policy to select only the required cadre for public service on a merit basis.’’ All this is, of course obvious to anybody but the movers and shakers of government starting right from the presidency which is now loaded with an unprecedented plethora of advisors. Most of these functionaries are underemployed if not unemployed. Few among their number have, like the respected diplomat Jayantha Dhanapala, refused payment for the services they perform or do not perform. When the cabinet is bloated, and ours would surely qualify for an entry in the Guinness Book for a country of our size and resources, it also means the creation of a great many public sector patronage jobs. Over and above their personal staffs, ministers of all political complexions find employment for their people in various institutions that come under them. The problem multiplies with chairmen, directors, and sometimes even heads of government departments of institutions under the various ministers bending over backwards to satisfy their patrons.

When the Central Bank advocates merit-based recruitment, it implies that this is too often lacking at present with patronage employment in the public sector becoming an institutionalized and ever-growing phenomenon. One reason why the unemployment rate has gone down is the war and the resulting enlistments in the armed forces. As has been pointed out by economists, the GDP too goes up because of military expenditure. We can do without such beneficial results from a horrendous national tragedy. Having said that, it must be added that the cost - both in terms of blood and money - may be worthwhile if the current endeavour leads to a permanent end to the fighting.

If our public sector is made more productive and downsized, it will be possible to pay state employees better. Today about half the government’s revenue is expended on public service salaries and non-contributory pensions. It would be useful to gather information on how this situation compares with what prevails elsewhere in the world. But it must be remembered that in many developed countries, services for which we employ people directly, is outsourced on contract and it may not be possible to capture the true picture. Nevertheless, there is a perception among many so-called "unemployable’’ graduates coming out of our universities at great cost to the taxpayer, that public sector employment is preferable to a private sector job. One reason for that, of course, would the belief/experience that government jobs are "softer,’’ but that is not the whole story.