Playing politics with Central Bank pay hike

The massive pay hike granted to the Central Bank (CB) officers has ignited a lively public debate. As part of the Bank’s customary salary revisions that take place once every three years, a highly lucrative salary increase has been offered to the employees representing all levels of the Monetary Authority. Under the CB’s new salary structure, a Deputy Governor draws a hefty monthly salary of Rs. 1.7 million while the salaries of peons had been increased by Rs. 70,000.

When the society at large is going through a painful time due to high cost of living, an exorbitant salary increase to a selected group of individuals would naturally incite feelings of envy from the public. As a result of the widespread negative publicity about the controversial move, the officials of the CB’s Governing Board were expected to provide a clarification on the disputed pay hike to the Committee on Public Finance yesterday. It is well known that the salaries of the CB officers have always remained at above-average levels in order to attract the most talented and academically competent individuals. Since the establishment of the CB, the Monetary Board had determined the salary scales of its employees in an independent manner.

Nevertheless, there is a perception within the society that the CB officers were also responsible for the catastrophic crisis the nation had to endure in 2022. To be fair, the then Deputy Governors Mahinda Siriwardena and Nandalal Weerasinghe tried their best to prevail upon the Gotabaya Rajapaksa administration to refrain from the disastrous policies that ultimately led to the economic meltdown, but unfortunately both of them were sidelined for expressing dissenting views. It is also reliably informed that the CB’s Economic Research department had submitted detailed presentations to Dr. P.B. Jayasundera, elaborating on the dire necessity of seeking help from the IMF, but instead of heeding such counsel he had berated the relevant officers.

Since the appointment of Weerasinghe to the governorship, there has been a marked improvement in the professionalism and objectivity of the CB. The inflation which was hovering around 70% during 2022 has now declined to 5.9%. In recognition of this noteworthy achievement, Governor Weerasinghe was recognised as a CB Governor with an A- rating by the prestigious Global Finance Magazine last year.

Certain politicians and individuals with vested interests are making use of the substantial salary increase to CB employees to achieve their opportunistic objectives. In doing so, few indulged in some baseless criticism against the Monetary Authority. One such ridiculous verbal onslaught was carried out by the prominent NPP politician Sunil Handunnetti. Last week, former COPE Chairman described the recent CB salary increase as a reward for manipulating economic data in favour of the Government. The former MP had also blamed the CB for understating the inflation rate. It is astonishing that Handunnetti, who is aspiring to become the Finance Minister in an NPP-led administration and having also represented the legislature for more than a decade, is unaware that it is not the CB, but rather the Department of Census and Statistics which computes the inflation based on the Colombo Consumer Price Index.

Although sensible criticism against the CB can be justified, outlandish and disparaging remarks of Handunnetti do not help to enrich the public discourse about the Bank’s conduct. The NPP politician had also pledged that under an NPP Government, the CB would undergo a transformation to prioritise the interests of people. What this changeover would be and how it is going to be executed are open for speculation.

The new Central Bank Act which was enacted last year satisfied a key condition of the standby arrangement with the IMF. If any future Government intends to alter that important piece of legislation in order to dilute the independence of the CB, it would greatly endanger the country’s economy. Such a course of action would also jeopardise the IMF program.