Following a proposal submitted by the Ceylon Electricity Board (CEB) to the Public Utilities Commission of Sri Lanka (PUCSL), it has agreed to reduce the electricity tariffs. Accordingly, the electricity tariffs have been reduced from July 16. Simultaneously, it is reported that the water tariffs will also be reduced soon. Many people are happy with reducing their electricity and water rates.
But some people, who are anti-Government, while being happy with the decision to reduce electricity and water tariffs, said that this move to reduce rates is done to strengthen the voter base. They also engage in various campaigns to discredit the Government over this.
However, they are trying to discredit the Government at a time when the Government decided to reduce electricity and water tariffs. Here, they see this decision as a move to get more votes. Recently, the All Island Three Wheeler Drivers and Owners Association (AITWDOA) announced a reduction in three-wheeler fares and the All Ceylon Bakery Owners’ Association (ACBOA) also said that they would reduce the prices of their bakery products. Small-scale rice millers have also announced a price reduction for rice varieties. These Associations have not yet announced that they would contest the Presidential Election (PE). Can someone say that they reduced prices to get votes?
Due to the reduction in electricity prices, fuel prices and gas prices, the production costs of many goods and services had decreased, and therefore, the manufacturers have reduded their prices. Many more manufacturing and service companies are likely to reduce their prices in the future.
Power and Energy Minister Kanchana Wijesekera has recently said that the prices of many goods could be reduced by about 20 percent due to price reduction in electricity . He said, therefore, the production cost has been significantly reduced and at least a 20 percent price reduction should be given to customers.
Price hikes
No Government is happy to increase the prices of essential goods and services. Especially, the Parliamentarians, who are elected by popular votes and are holding Ministerial portfolios at present, are not happy to go for price hikes as that will negatively impact on their political careers. However, due to the serious economic crisis in the country two years ago, it was mandatory to increase the prices of the products of some of the state-owned companies, which were running at a huge loss.
When signing the agreement between the Government and the International Monetary Fund (IMF) in providing loans to the country, the Government has agreed to turn some of the public sector manufacturing institutions, which are running at a loss, into profit- making state institutions.
The countries, which provide us with loans, get the funds from their people’s tax money. If Sri Lankans reject to pay a price equal to the cost of goods they consume, then the deficit will be covered by the loan-lending countries. In such a situation, no country will lend loans to Sri Lanka. Due to this scenario, the IMF had to impose tough conditions on Sri Lanka. Among the institutions that suffered losses were the Ceylon Electricity Board(CEB), Ceylon Petroleum Corporation (CPC), and the Sri Lanka Transport Board (SLTB).
Both before and after the signing of the IMF agreement, the Government raised the prices of goods and services provided by these institutions. As a result, it brought their expenses at least equal to their income. In 2022, a large number of Government manufacturing and service institutions, which were running at a loss, have now become profitable.
The losses incurred to the CEB in 2022 were Rs. 13 billion. However, in 2023, it recorded a profit of Rs. 9 billion and was able to pay off some of its debt to the CPC. The CEB has been able to reduce electricity tariffs twice this year due to the advantage of the decrease in the price of fossil fuels in the world market, the decrease in the cost of electricity production due to this year’s good rainfall and the increase in the Sri Lanka Rupee (LKR) value. It is clear that this price reduction is not an ad-hoc price reduction to boost the voter base. According to the agreement reached with the IMF, there is no space for an artificial price reduction aimed at the forthcoming Presidential Election (PE).
IMF Agreement
Even a slight violation of or a deviation from the IMF Agreement may result in the cancellation of the loan program. Therefore, it is very unlikely that the Government will act in an ad-hoc manner to reduce the prices of services and products of State-owned manufacturing institutions to gain more votes. There is also nothing a Government can do about such a price reduction when an election is around the corner.
Not only will the prices of many products and services of the Government sector but also the private sector be reduced in the future. The devaluation of the US Dollar (USD) is among many other reasons that significantly contributed to this price decrease in the country’s production costs. Regarding the exchange rate, some people argue that the depreciation of the dollar has been caused due to the behaviour of the Central Bank of Sri Lanka (CBSL). However, newspapers have recently reported that the CBSL intervened in the foreign exchange market to prevent the dollar from falling.
It is expected that when there is a good flow of dollars coming into the country, the value of the dollar will fall further in the future. The result of such a situation could be a further reduction of prices of goods and services. The construction sector is one of the leading economic sectors in Sri Lanka which has suffered a severe setback since the Covid-19 pandemic. Initially, the construction industry fell mainly as workers including masons, construction workers, engineers, and architects stayed at home due to the rapid spread of the Covid -19 pandemic. At the same time, the industry suffered due to the collapse of international supply chains, importing goods became a serious issue and also resulted in a shortage of foreign exchange and price increase of building materials.
In this situation, the construction industry almost collapsed and many people lost their jobs. But since a few months earlier, the prices of building materials have started to reduce and the industry seems to be stabilising again. With the increase in the value of the LKR and the expected price decrease of building materials, a sound boost in the construction industry is expected, which will contribute to the economic growth, again as before.
The Government this week reduced the prices of five types of fertiliser used for tea cultivation. That is a significant price reduction and it is a result of the increase in the value of the LKR and the changes in the prices of fertiliser in the world market. At the same time, the Government has also taken a decision to establish a strong fertiliser supply sector by merging the two State-owned fertiliser companies. As a result, the cost of the distribution sector has been greatly reduced. Therefore, it can be expected that the prices of fertiliser and other agricultural materials will also decrease in the future.
Severe shortages
However, some may see it as a price reduction for the sake of gaining votes. The country suffered a great economic crisis due to the Covid-19 pandemic, foreign exchange crisis, world economic crisis and a serious economic crisis due to the Aragalaya (Struggle). As a result, the prices of goods increased significantly and the people experienced severe shortages of some of the essential items.
Prices of some of the commodities increased due to shortages and when the economic crisis worsened, the prices of imported goods also increased due to the depreciation of the LKR. Inflation was also a reason for the rising prices. Increase in taxes, increase in electricity prices and increase in fuel prices have also led to increase in the prices of goods and services. At the same time, some producers, traders and distributors created artificial price hikes of most goods.
Today, everything has changed. The economy has stabilised. The LKR is strengthening. The country’s production has increased. Electricity tariffs, fuel price and bank interest have reduced. Therefore, the prices of many goods and services may decrease further. It is a Good News (Subha Aranchiyak) for the country. There is nothing that the Opposition politicians can do but let them grieve.
