Returning Sense

Apr.11 (LBO) – Sri Lanka’s finance ministry says fuel subsidies are placing an unsustainable burden on the exchequer; in a move analysts expect to be a precursor to an upcoming round of retail fuel price hikes. “In 2005, the government had to spend Rs25 billion to sell fuel below cost,” a statement from the Ministry of Finance said.

“The lifting of value added tax cost a further Rs7 billion.”

The Finance Ministry now says the Rs32 billion could have been better spent on development activities and uplifting the poor.

In 2004, the current ruling coalition won a general election with the support of the Marxist-nationalist Janatha Vimukthi Peramuna (JVP) on a promise to subsidize fuel.

The policy, widely popularized as ‘removing the plug,’ promised to insulate Sri Lanka against the forces of international market forces.

In 2004, the government used central bank credit to pay for fuel subsidies, instantly plunging the country into a balance of payments crisis and driving consumer inflation up to 18 percent by the end of the year.

The subsidy policy also discouraged fuel conservation and promoted rampant consumption.

The Finance Ministry says in 2003 the government spend US$750 m