Sri Lanka busts fertilizer subsidy budget in five months

July 14, 2008 (LBO) – Sri Lanka has spent almost a year’s allocation for a populist fertilizer subsidy in just five months, the finance ministry said in a report, indicating that more than 30 billion rupees would be needed to maintain it till the year end.

Policy Stampede

In recent years policy makers and senior government advisors in Sri Lanka have claimed that fertilizer subsidies were an ‘investment’ while a finance minister in 2004 said cutting budget deficits were ‘old fashioned’ under a ‘home grown’ economic policy.

The fertilizer subsidy, along with a fuel subsidy, were the key strategies behind an economic framework popularized by the Marxist-nationalist Janatha Vimukthi Peramuna (JVP) called ‘removing the plug’ or insulating the country from global forces.

The economic policy framework took the country by storm and popular imagination was captured with the idea of having fixed-price fuel and tens of thousands of small irrigation tanks re-built to push up rice production with subsidized fertilizer to bring prosperity to the nation.

The current ruling Sri Lanka Freedom Party, which had been pursuing prudent policies that brought low inflation to the country since 1995, latched on to the policy framework and extended it