Friday, 30th January 2015
As expected, the budget of President Maithripala Sirisena's coalition party, the New Democratic Front (NDF), mainly comprising Sri Lanka's two principal political parties, the UNP and the SLFP, which presented its maiden, and possibly last budget before general elections are held in another five months' time from now.
Those included the reduction in a cylinder of cooking gas by Rs 300 to Rs 1,596, sugar by Rs 10 a kilo, a 400 gram packet of milk powder by Rs 61 to Rs 325, wheat flour by Rs 12.50 a kg., a loaf of bread by Rs 6, green gram by Rs 40 a kg., sprats by Rs 15 a kg. and tinned fish by Rs 60 a kg.
UNP MP and NDF Finance Minister Ravi Karunanayake, who presented this interim budget, announced the reduction in the prices of a host of other items as well, including coriander, turmeric, Maldive fish and chilli powder. He said that such declines encompassed 13 essential items.
Karunanayake further said that bus fares would be reduced by 10% (he expected van fares too to be reduced by 5%), kerosene by Rs six to Rs 59 a litre, public sector salaries to be hiked by Rs 5,000, pensions by Rs 1,000; Rs 20,000 relief to expectant women, Rs 50 guaranteed price for paddy, among a host of other benefits.
However, the Finance Minister was 'silent' about the high cost of vegetables, where the prices of certain selected vegetable prices in the Pettah retail market in the week ended Friday 22 January, 2015 had increased by between Rs 43 to Rs 300 a kg.on a year-on-year (YoY) basis, hitting the poor and the fixed wage earner the hardest.
In percent terms, such increases varied between a low 45% to a high 184%, according to Central Bank of Sri Lanka (CBSL) statistics.
Examples are where the price of beans had increased by a massive Rs 159 (53%) to Rs 300 a kg.; cabbage by Rs 149 (164%) to Rs 240 a kg.; carrots, Rs 123 (100%) to Rs 260 a kg.; tomatoes, Rs 78 (64%) to Rs 200 a kg.; pumpkins, Rs 43 (76%) to Rs 100 a kg.; snake gourd ('pathola'), Rs 43 (45%) to Rs 140 a kg.; brinjals, Rs 181 (184%) to Rs 300 a kg. and ash plantains, Rs 74 (77%) to Rs 170 a kg., according to those statistics. Nonetheless, certain other essential vegetables such as green chillies, which retail prices had increased to over Rs 100 per 100 grammes in recent times, have not been captured by CBSL in that data dissemination process(see also this newspaper's editorial of Monday, 26 January, 2015)..
Meanwhile, Karunanayake, in his budget speech, said that those reductions, coupled with increased wages were possible due to the bringing down of taxes on such items which were mainly in the form of a reduction in import taxes, coupled with knocking down on waste and corruption.
He also announced several revenue enhancing measures.
The minister further said that the government would forego a tax revenue of Rs 85 billion due to reduced energy prices.
Globally, oil prices have come down by 50%, helped by slack demand caused by the EU's economic crisis and the discovery and exploitation of shale oil in the USA, the world's biggest oil consumer, which is seemingly to Sri Lanka's benefit as well.
Petroleum fuels, at least before coal fired power plants came on stream, comprised roughly 25% of Sri Lanka's import bill. With an import bill of approximately USUS$ 20 billion, a 50% theoretical reduction in Sri Lanka's oil import bill translates to a saving of US$ 2.5 billion.
That is, ipso facto the theoretical picture. However, the reality may be different.
According to available statistics, Sri Lanka's import bill in 2013 was US$ 18 billion, a 6.2% YoY decline. CBSL attributed this decline to a depreciated exchange rate, higher taxes on imports, in particular that of vehicle imports and increased electricity prices that stifled demand.
In that backdrop the island's fuel bill comprised US$ 4.3 billion or 23.9% of Sri Lanka's total fuel bill in 2013, it said.
Sri Lanka also runs a perennial deficit in its balance of payments caused by a deficit in its external trade account.
Meanwhile, Sri Lanka's latest trade statistics are available only for the first 11 months of last year. According to those statistics, Sri Lanka's trade deficit in the first 11 months of last year increased by 6.6% to US$ 7.5 billion. This is in the context that Sri Lanka's import bill in the review period had increased by 7.1% to US$ 17.6 billion.
In the first 11 months of last year, Sri Lanka's fuel bill comprised US$ 4.3 billion or 24.6% of its total fuel bill. In the corresponding period in 2013, that is in the first 11 months of 2013, the island's fuel bill comprised US$ 3.9 billion or 23.4% of its total fuel bill.
In absolute terms, Sri Lanka's fuel bill in the first 11 months of last year vis-à-vis the same period in 2013 had increased by US$ 485 million. In percentage parlance this increase is equivalent to 12.6%.
Those developments show that though the world's crude oil prices in a period of a year up to now has fallen by 50% or more, the same has however, not been reflected in a reduction in Sri Lanka's fuel bill, notwithstanding the fact that Sri Lanka's cheaper coal fired power projects have also seemingly come on stream during this period.
Rather, Sri Lanka's fuel bill had in fact has increased in the review period. According to available statistics, State-owned Ceylon Petroleum Corporation (CPC) in January 2014 imported crude oil at US$ 113.84 per barrel (CIF), a 2.4% YoY increase. By December 2014 its import price had fallen by 33.3% (US$ 37.86) to US$ 75.98 per barrel (CIF), that is in a 11 month period to December 2014. On a YoY basis, CPC's crude oil bill had declined by US$ 36.15 (32.2%) to US$ 75.98 per barrel as at December 2014.
Nevertheless, Sri Lanka's crude oil bill as at the first 11 months of last year had increased by US$ 485 million or by 12.6% to US$ 4.3 billion, according to latest CBSL statistics. With the expansion of Sri Lanka's trade deficit on a YoY basis to 6.6% in the review period, ipso facto that shows there is no trade surplus.
So, a question mark arises as to how the benefit of low energy prices may be passed on to the consumer, when in fact Sri Lanka's fuel bill has increased during this period and the trade deficit has expanded, thereby raising questions in regard to the sustainability of such price reductions, wage increases and other reliefs provided by the new government's interim budget?
From : http://www.ceylontoday.lk/52-83526-news-detail-peoples-budget.html
