Senior executives of top business groups in Sri Lanka have taken up to 60 percent salary cuts as Coronavirus killed sales and hit cash flows, but not state sector salary cuts have been announced though most are staying at home.
Sri Lanka’s publicly traded John Keells Holdings told employees in a memo that directors will take a 60 percent salary cut, and other executives will take a 35 percent.
Travel allowances will not be paid for the next three months.
Many businesses including export firms have announced that top executives will cut their pay.
Capital expenditure and recruitment has also been frozen at many businesses while workers are being laid off at others.
Small and large private businesses have no revenue to pay salaries or rents.
In India, Prime Minister Narendra Modi and politicians have announced a 30 percent pay cut, while pensions of former politicians have also been trimmed.
Sri Lanka’s state workers however are getting their full pay, though only the health service and key agencies are operating.
Though private firms run out of cash, state workers can be paid by printed money (liquidity injections or Central Bank credit), which then triggers a depreciation of the currency.
In some countries money printed to pay states salaries have led to a complete meltdown of the external sector, downgrades and sovereign default, economic analysts say.
Countries that don’t print money and maintain the credibility of their pegs are able to easily roll-over foreign debt and also raise domestic money at lower rates as private credit slows.
Sri Lanka’s rupee has plunged from 182 to the US dollar to close to 200 as the large liquidity injections were made and rates were cut apparently to target a call money rate with excess cash.
Analysts have called for central bank reforms to maintain monetary stability.