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Sri Lanka fuel subsidies consumed by the richest 30-pct

ECONOMYNEXT – Sri Lanka’s top 30 percent of society consumed and overwhelming 70 percent of fuel sold in the country and subsidies are effectively channelled to the rich, World Bank country economist Ralph van Doorn said.

Pricing reforms were required to fix state enterprises, which have now become fiscal risks, van Doorn said.

"Since the non-poor are the largest consumers of fuel and electricity the administered fuel prices are an effective subsidy to the non-poor funded indirectly by fiscal resources," World Bank’s Sri Lanka Development Update for 2017 said.

The share was much higher than the consumption of fuel by the bottom 40 percent of earners directly and indirectly through public transport, the report said.

In all countries most of the income of the poor go to food, and energy consumption goes up with income as they travel more and use powered equipment and air conditioning.

In Sri Lanka electricity is price discriminated with large households paying more than small users. But fuel prices are indiscriminate.

In Sri Lanka kerosene is also subsidized and is use by several industries. The current administration sharply cut kerosene tariffs, giving rise to concerns of cronyism.

When global fuel prices go up, subsidies are financed through state bank credit. High levels of debt at state enterprises taken to finance consumption subsidies have added to Sri Lanka’s debt crisis.

On several occasions money printed to finance energy subsidies has triggered balance of payments crises. In 2003/4 money was printed to replace tax offsets given to Ceylon Petroleum Corporation.

In 2011/2012 money was printed to keep rates down as energy utilities borrowed heavily from state banks. (Colombo/Nov03/2017)

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