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Sri Lanka to go ahead with price formula; ad hoc policy may end

ECONOMYNEXT – Sri Lanka is set to implement a fuel price hike by formula, which was reportedly scuttled by President Maithripala Sirisena last week, in a development that can help improve long term economic and currency stability, a minister has said.

Finance Minister Mangala Samaraweera implemented the price formula after detailed discussions and gaining cabinet approval and not through an arbitrary policy.

Market pricing fuel is a policy advancement called by many independent economists and analysts every since Wimal Weerawansa opposed, an opposition legislator opposed it.

The public was informed by the finance ministry that a price change will happen on the fifth of the month.

However the price increase was arbitrarily scuttled in a Trump-style allegedly executive order, literally on the eve it was set to take place creating confusion at petrol sheds.

"Glad that President @MaithripalaS has appreciated the need to continue the fuel price formula," Deputy Economic Policy Minister Harsha de Silva said in a twitter.com post.

"Positive development for #SriLanka. Will certainly help in managing macro variables plus demand side management."

When petroleum utilities run losses and finance them with bank debt, or taxes are removed to keep prices down and the government is forced to borrow, interest rates go up and investible savings are used for political gain and consumption.

Any attempt by the central bank to keep rates down, by printing money then result in currency depreciation and inflation.

However under current so called REER-targeting or trade-oriented monetary policy practised over the past two years, the currency may fall even if people pay taxes.





Sri Lanka’s finance ministry sources said last week the plan was to change prices more often, which could be weekly or every two weeks. In most free countries with low inflation, fuel prices change daily.

"There is no need for politicians to sit in Committee to decide prices," de Silva said.

"There is a formula and that should determine the price. Not everything has to be politicized. That IS the problem in this country. More frequent the adjustment better it is."

More frequent adjustments may also mean smaller changes. It is not clear what the new prices would be. But if prices are changed weekly, or monthly changes have to be small. (Colombo/July10/2018)

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