Killer Kindness

Feb 18, (LBO) – Due ignorance about basic economics, the poor in South Asia are seeing economy-wide price rises, and resources that could be used to lift them out of poverty in the long term being squandered on consumption subsidies. In 2005 for example, the Sri Lanka’s largest petroleum utility, the Ceylon Petroleum Corporation is estimated to have spent about Rs21 billion on fuel subsidies, Lanka IOC Rs7.4 billion and the Ceylon Electricity Board is estimated to have lost about Rs18.8billion.

This amounts to more than 2 percent of GDP.

A World Bank study has found that South Asian governments spent more money on fuel subsidies, than they are spending on either heath or education.

In 2004 Sri Lanka’s government, abandoned automatic fuel price adjustments and printed money to the equivalent of 3 percent of GDP, to subsidize a range of imported commodities including oil and fertilizer under a new home-grown economic policy framework, which was aimed at insulating the country from world market prices.

The use of excessive central bank credit promptly pushed year-on-year consumer inflation up to 18 percent and plunged the country into a balance of payments crisis.

The World Bank has found that in many South