Inflation at record low:
Economic growth at 8%:
Economy stable despite world fuel price hike
The Government while being compelled to
increase oil prices, decided to provide subsidies in a bid to
cushion many sectors from this impact on the economy
The prime objective of imposing economic sanctions on a country is to
economically freeze the nation and apply pressure so that they agree to
internationally accepted terms and conditions.
This international move has sometimes worked, but there have been
instances in world history that it had backfired, imposing severe
restrictions on other nations and not the country that was targeted.
Many global analysts say that this has happened with regard to Iran
as it is not Iran, but other countries that have to face the
consequences of the oil export embargo which has resulted in soaring
global oil prices. If one analyses this scenario, it is evident that the
crude oil prices which were stable and manageable earlier had increased
tremendously, forcing all countries to increase fuel prices.
Most countries decided to place this increased oil price burden on
the public and let it rest there.
However, the Government of Sri Lanka, while being compelled to
increase oil prices, decided to provide subsidies in a bid to cushion
many sectors from this impact on the economy. For fishermen, private bus
operators and many other sectors including three-wheeler operators, a
subsidy system was introduced so that the increased oil prices would not
have a negative impact on the economy.
The Government was compelled to increase the price of fuel due to the
difficulty in shouldering the massive economic weight imposed by the
rise in world oil prices, a decision the Government was forced to take
against its will, President Mahinda Rajapaksa said. "The Government has
never imposed hardships on the people willingly," he said.
Tea was one of the main
Central Bank Governor Ajith Nivard Cabraal
However, the Opposition, in a bid to bring disrepute on the
Government, had launched a series of programs to provoke the people
saying that the price increase for goods and services was too high.
However, the reality is that Sri Lanka's inflation is the lowest in
history and the revised prices would not have an impact on inflation.
The fuel price hike was not exclusive to Sri Lanka, but happened
No big fuel bill
Central Bank Governor Ajith Nivard Cabraal said that when Ranil
Wickremesinghe was in charge of the economy, inflation was at 26 percent
and the economic growth rate was six percent. "Today, due to prudent
economic management, inflation is at a single digit level (3.8 percent)
and the economic growth rate at over eight percent." The recent price
increase has been made at a time when inflation, in January 2012, was at
3.8 percent, one of the lowest levels in recent history.
"Therefore, it is clear that the fuel price hike will not be
unaffordable to the people and this increase will not be as critical as
it is made out to be by the Opposition," he said.
He said an average customer, who had a monthly electricity bill of
around Rs. 291, would now have to pay an additional Rs. 100, while a
household which had a bill of around Rs. 550 would now have to pay
around Rs. 760. "On average, each consumer would have to pay around Rs.
12 to 19 per day under the new tariff system," Cabraal said.
"Even with the recent fuel price adjustments, the price of petrol and
diesel in Sri Lanka still remains lower than that of Singapore,
Australia, England, Germany, France, Spain and Italy" he said .
"A car consuming petrol, travelling to Colombo and back each day
(around 18 km), with the revision of fuel prices, would only have to pay
an additional Rs. 43.60 while the additional cost for a diesel vehicle
is Rs.111.60 per day" he said.
He said prices of some essential goods, such as red rice have
drastically come down from Rs. 72.96 per kilo in January 2010 to Rs. 55
and samba from Rs. 88 to Rs.68. (per kilo)
In addition, a kilo of dhal has come down from Rs. 135 to Rs. 95 and
onions from Rs. 137 to Rs. 75 during the same period.
Sri Lanka has now moved to middle income nation level and is
predicted to be among the top four economies in the world. Per capita
income is expected to reach US $ 4,000 in three years from US$ 981 in
2003 and the country is set to become the Wonder of Asia soon creating
new opportunities to the public as well. People would soon enjoy better
An increasing number of vacancy advertisements are published in
newspapers, an indication that the unemployment rate has dropped.
Figures show that the country's unemployment has fallen to 4.3 percent.
|The prices of
rice have come down
In addition, the use of mobile phones expanded rapidly in 2011. There
were about 18 million mobile phones and more than 22 million total
telephone connections in Sri Lanka by end-2011.
The number of new apartment buildings and individual housing is
increasing and selling fast, an increasing number of household
appliances are being sold while supermarket chains are expanding
rapidly, an indicator of the people's buying power.
An increasing number of people send their children abroad for studies
while an increasing number of people go abroad on holiday. During long
weekends, hotels are full to capacity. The number of banking outlets is
increasing sharply and reached 6,079 by end-December 2011. Due to the
provision of electricity and petroleum products below market rates, the
Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB)
suffered serious losses. Both diesel (Rs. 112) and kerosene (Rs. 106)
processing price was over the selling price (Rs. 84 and Rs. 71
respectively). The CPC sold it below Rs. 100 for many years. Dut to
this, the CPC suffered a loss of Rs. 81 billion last year.
"A fuel hike should have been imposed from last August to minimise
the huge losses sustained by the Ceylon Petroleum Corporation, but it
was not implemented," he disclosed.
Though the CEB made profits recently, it could not maintain this
trend, resulting in the institution also suffering losses of Rs. 16
billion. The CEB power generation cost per unit was around Rs. 15.31 and
the selling price was Rs. 13.39.
Due to this, both institutions needed a financial injection from the
State as well as the public to stop them from collapsing and from being
privatised due to their losses. Previous governments had deliberately
let some of the State institutions decay and they were privatised
causing immense burdens on the public.
The Government, while providing relief for these institutions, also
spent heavily on infrastructure and on subsidies which includes
fertiliser subsidies, Samurdhi and free health and education.
Following the decision taken by the Government to provide each
household without electricity with a kerosene subsidy of Rs. 200, nearly
500,000 families including those in the plantations have become
Head of the Samurdhi Commissioner General's Department Chandra
Wickremasinghe said that the program to provide the kerosene subsidy to
330 Divisional Secretariat areas in 25 districts was launched islandwide.
The Government will spend an additional sum of nearly Rs. 80 million
for this subsidy. It will be similar to the additional expenditure the
Government will have to bear as a result of the fuel price hike.
Under the guidance of President Mahinda Rajapaksa, Economic
Development Minister Basil Rajapaksa will direct the provision of the
kerosene subsidy under the Department of the Commissioner General of
Samurdhi through the Divisional Secretariats to all households without
electricity, from February 15.
Not only Samurdhi beneficiaries, but occupants of houses with no
electricity are also entitled to this subsidy. Upon producing the Grama
Sevaka's recommendation, they may obtain the ration cards issued by the
Samurdhi Development Officer from the multi-purpose cooperative of the
area or any sales agent approved by the Divisional Secretary.
Billions of rupees are being spent on infrastructure development.
External sector improves
Meanwhile, the external sector remained buoyant in 2011, with
expanding external trade, growing services inflows and workers'
remittances and higher long-term inflows of direct investments and
inflows to the Government amidst the challenging external environment.
Earnings from exports recorded an increase of 24.3 percent to US $
906 million in December 2011 compared to that of December 2010. The
expenditure on imports, although increasing by 33.7 percent to US $
1,910 million in December 2011, decelerated from a year-on-year increase
of 78 percent reported for November 2011.
The expenditure on imports was driven by continuing demand for
investment and intermediate goods. Government infrastructure projects,
financed mainly by foreign loans, also raised the demand for investment
The largest contribution to export earnings in December 2011 came
from industrial exports followed by agricultural exports. Industrial
exports increased by 28.9 percent to US $ 703 million in December 2011
compared to the same month of 2010.
Among industrial exports, textiles and garments remained the major
contributor and grew by 25.2 percent to US $ 384 million followed by
rubber products, food, beverages and tobacco and machinery and
Agricultural exports grew by 10.3 percent, year-on-year, in December
2011, mainly driven by tea and coconut exports. Earnings from tea
exports grew by 10.5 percent and coconut exports recorded an impressive
97 percent growth in December 2011.
Rubber exports declined as the demand for rubber from domestic
industries continued to remain elevated.