As Sri Lanka’s presidential and parliamentary elections get closer there are growing accusations that politicians have contributed to the inefficiency of the state sector (under each other’s regime). This is in addition to claims by various organization that Sri Lanka’s public sector deteriorated throughout the post-colonial period, and the “bloated" public sector has become a burden on the society and taxpayers. Many such organizations stress the need to reduce the size of the state as well as cut in state spending.  

However when we examine data across countries in the developed and developing world, we can neither support an argument that Sri Lanka’s (overall) state sector is excessively large, nor it is inefficient – especially given Sri Lanka’s high Human Development Index (HDI) and Sri Lanka’s very low level of state spending.

Sri Lanka’s public sector employment as a percentage of total employment averaged 14.9% during the five year period upto 2023. Table below compares this figure with the level of state employment in other regions.  

State employment as share of total employment

We can observe from the above table that state sector employment tends to increase as economies progress. The distribution of public sector employment by sector varies by region and national income level. On average 72% per cent of public sector employment is in non-market services in high-income countries, compared to 54% in low-income countries. In Sri Lanka, an estimated 85% of public employees are in non-market related jobs (i.e., commercial organization jobs). This suggests that even in high-income countries, a considerable share of state jobs are in state owned commercial organizations.

From the above table we can also observe that Sri Lanka’s state employment level is comparatively high when we compare with the Asia Pacific region, and higher middle-income countries. Sri Lanka’s state employment levels are somewhat closer to high-income countries, and European and Central Asian countries, which are mostly welfare states. This is not surprising as almost all post-colonial governments focused on achieving a higher level of social welfare. In fact, Sri Lanka’s many social welfare programs have a history going back to the colonial era.

We can also evaluate if Sri Lanka’s state sector workers are efficient (and hence not wasting taxpayers' money) in delivering what they are supposed to deliver. Public servants are responsible for delivering essential services that directly impact the lives of citizens and communities. This includes education, healthcare, transportation, social services, and public safety. Successful delivery of these essential services result in improving the country's HDI score. Sri Lanka’s current HDI score stands at 0.78 and is the highest in South Asia.

Another perspective we need to look along with the HDI score is the efficient use of “funding” in delivering state services. This can be evaluated by comparing the level of state (budget) spending. Sri Lanka has a track record of very low government spending (as a percentage of GDP). During the ten year period ended 2023, average state spending amounted to 18.8% of GDP (government spending has never exceeded 20% of GDP during the last few decades). Sri Lanka is one of the 24 countries in the world with state spending less than 20% of GDP. Table below shows some of these countries together with their HDI score.

State expenditure and HDI score

When we look at the above table it is not possible to say that Sri Lanka’s state sector is inefficient as it has successfully managed to achieve high human development under limited resources (or low budget spending). In the UK government spending amounts to 45% of GDP and public jobs amount to 17.3% of the country's jobs. In the USA, where there is no free public healthcare system, the government accounts for 16% of the country's employment while government spending amounted to 23% of GDP.

Achieving high HDI rating while maintaining a state cadre amounting to almost 15% of total employment, while managing many welfare programs within a government budget of less than 20% of GDP looks like a job well done. Sri Lanka’s state sector may not be perfect and may have many weaknesses needing reforms, but it cannot be said that Sri Lanka’s overall state sector is inefficient.

(The author is a Colombo-based independent private market investment advisory professional and a handloom entrepreneur. Views are personal. He can be contacted at indika.h@jupitercapitalpartners.com )