Oct 23, 2008 (LBO) – Sri Lanka is offering a fertilizer subsidy to small tea farmers three times a year, at a cost of 4.7 billion rupees a year, officials said, while Colombo tea prices slid on a commodity bubble collapse. Sri Lanka’s populist vote-buying subsidies have been blamed for the large budget deficits in the country, which are often bridged with central bank credit or printed money resulting in 20 percent plus inflation and hurting the poorest of the poor most.
Politicians routinely claim ‘that the government is bearing the burden’ and people are unaware that they ultimately pay for all state activity either through taxes, printed money which causes inflation or debt, which has to be re-paid by another generation.
Until this month small tea farmers have made record amounts of money but a collapsing global commodity bubble has hit Sri Lanka’s tea auctions and prices have started to fall dramatically in October.
Buyers have also been put off by an exchange rate, that is increasingly being propped up with central bank intervention, while competitor countries like India and even buyers like Russia have seen a weakening of their own currencies. Small tea farmers are mostly concentrated on the southern low