- IMF stresses need for governance and anti-corruption reforms in SOEs
- Tariff hikes a blow to SMEs
Those who are against tariff hikes on electricity will have to compensate losses of the Ceylon Electricity Board (CEB) by way of taxes, said Central Bank Governor Dr. Nandala Weerasinghe.
He was addressing the third monetary policy stance media briefing for the year on Thursday at the Central Bank.
He said one will have to decide which option is best whether to pay taxes to the Government or pay the cost of utility.
“Paying the cost of the utility will be better rather than having to pay taxes to meet the cost of production,” the Governor said.
The implementation of a cost-reflective electricity tariff is a key condition of the IMF’s Extended Fund Facility program with Sri Lanka aimed at ensuring the long-term financial stability of the CEB.
The global lender wants the CEB’s tariffs to reflect the costs of electricity generation, transmission, and distribution.
The CEB reported its first loss of Rs. 18 billion for the first quarter this year according to its interim financial report after posting profits for five consecutive quarters since Q4 2023.
The IMF too has been insisting that the CEB pulls up its socks on governance and implement anti-corruption reforms key to boost its management efficiency.
The CEB has earned notoriety in the past for its failure to manage and distribute its services efficiently.
However, small and medium sector enterprises that would be the most affected sector of the economy will be in a worse predicament if electricity tariffs are increased to an unbearable level.
The CEB has proposed an 18.3 percent increase in electricity tariffs for which public consultations is due to begin today and continue at provincial level till June 5.
Meanwhile the Central Bank further slashed its Overnight Policy Rate last week taking into account global and domestic developments.
The Monetary Board of the Central Bank is of the view that this measured easing of monetary policy stance will support steering inflation towards the target of 5%, amid global uncertainties and current subdued inflationary pressures.
Officials of the Board said deflationary conditions have begun to ease since March 2025, as predicted. The latest projections show signs of a more gradual pickup in inflation in the near term than previously anticipated.
Inflation is expected to turn positive in early third quarter of this year and gradually align with the target thereafter, according to the bank officials.
However, interest income earners who constitute a sizeable section of the population taking onto social media expressed dissatisfaction over the rate cut which would lower their interest earnings from deposits. The bank has cut the overnight policy rate by 25 bps to 7.75%.
Core inflation according to the banking and financial sector watchdog is expected to increase gradually in the coming months from current low levels. Inflation expectations are also aligning with the inflation target.
However, global uncertainties, which could have implications for Sri Lanka, have escalated from the time of the previous monetary policy review which the financial sector regulator said would be cloudy to make economic growth forecast for this year.
