An Echelon Media Company
Sunday June 16th, 2024

Sri Lanka’s data prices are low, but it is still expensive for low income earners due to tax

The author is a researcher working on telecom and big data projects at LIRNEasia, a regional ICT policy thinktank. She was appointed Chair of the ITU’s sub-group tasked with proposing revisions to the ITU’s ICT Price Baskets in 2017. The revised methodology was adopted in 2018 by all member states.

At the World Telecommunication/ICT Symposium (WTIS) held in Geneva, December 2018, there was a panel dedicated to affordability of ICT services. The conversations were centered on price as a key driver for adoption and use of Information and Communication Technologies (ICTs).

Price isn’t everything. But it is the most notable and distinguishable factor when purchasing a good or service and therefore is paramount. It is also the perception and value of a specific service that affords the rationale for spending. According to LIRNEasia’s recent “AfterAccess” multi-country surveys, lack of affordability is among the top three reasons that affects consumer’s choices of getting online and staying online.

With the ubiquitous nature of the Internet and the increasing dependence of services offered via mobile networks, it is important to analyze the pricing of mobile broadband plans.

Are prices in Sri Lanka high?

The International Telecommunication Union (ITU), the UN apex body on ICTs, annually benchmarks prices for voice, SMS, and fixed and mobile broadband for its member states. Sri Lanka has among the lowest prices in the world, ranked at no.21 for mobile broadband (plans with minimum 1 GB data allowance/month) out of 181 countries, based on price in USD (including taxes) as a percentage of GNI per capita.

It has the lowest prices among SAARC countries in terms of absolute prices as well as price as a percentage of GNI per capita, despite the third highest tax rate (Table 1).

Price vs. Affordability

“Price” and “affordability” are terms often confused and used interchangeably. Affordability is impacted by variations in price and income, among other things. In theory, the underlying costs of providing a service tend to decrease with time (as capabilities of newer technologies afford higher levels of efficiency). However, this may not always be reflected in the final price the consumer pays.

But how low should prices go to be affordable?

According to the new targets set in 2018 by the UN Broadband Commission for Sustainable Development, “entry-level broadband services should be made affordable in developing countries at less than two percent of monthly Gross National Income (GNI) per capita, by 2025.”

While Sri Lanka is well within the target (Table 1), a country-level average of GNI per capita does not really represent the ground reality. Further analysis on price as a percentage of household income per capita (and considering the average size of a household as 3.8 persons, based on data published by the Department of Census and Statistics), by decile (Table 2) paints a clearer picture of affordability.

Table 2: Mobile broadband basket (1 GB, 2017) price as a percentage of household income per capita, by decile.

As Table 2 shows, for the poorest in the country, 1 GB of data will cost approximately eight percent of their monthly income.

Although the Broadband Commission target is not met across all income deciles, prices in Sri Lanka are still a lot more affordable than, for example, in India.

Based on the published household income quintiles, prices in India range from five percent to 33 percent of monthly income per capita, per quintile (from the highest to lowest, respectively).

There is no doubt that low prices allow for greater adoption and use. Prices that are too low, however, can threaten long-term sustainability and are detrimental to the market.

Given the capabilities of newer technologies such as 5G that promise greater speeds at lower levels of latency (or round-trip time) while dealing with issues like congestion that current networks face, operators should to be incentivised to invest. Without regulatory certainty, it is unlike that the significant investments required will be made.

If the government wants to make Internet access more affordable, it should consider cutting taxes, which are third highest in the region, below only Pakistan and Bangladesh.

If the government wants to address the needs of those in the poorer deciles or specific market segments, it should use the revenues collected from international calls and design targeted subsidies without harming the already problematic investment environment.

(Colombo/Feb28/2019-SB)

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

Sri Lanka state airport agency swimming in cash after sovereign default

ECONOMYNEXT – State-run Airport and Aviation Services (Sri Lanka) Ltd is swimming in cash after a sovereign default halted debt repayments allowing it to post a profit of 29.7 billion rupees with 10.4 billion rupees in interest income, official data showed.

In April 2022 Sri Lanka declared a sovereign default after printing large volumes of money over more than two years to enforce rate cuts and blowing the biggest hole in the balance of payments in the history of the island’s money printing central bank.

Interest earnings of Airport and Aviation Services also shot up to 10.4 billion rupees in 2023 from 6.1 billion in 2022 and 3.3 billion rupees in 2021 before the sovereign default.

Under the terms of the default or ‘debt suspension’, state agencies like the Airport and Aviation Services, and Sri Lanka Port Authority were also not required to service loans, even if they had the cash to repay loans.

AASL’s finance income shot up in 2023 “mainly because the company has invested surplus cash saved by not servicing the foreign loans obtained by the company due to the temporary debt moratorium policy of the country,” the Finance Ministry said in a report.

Sri Lanka’s rupee and foreign currency interest rates also shot up in 2022 and 2023 as rate cuts enforced by money printing were lifted to clear anchor conflicts.

After inflationary rate cuts kill confidence in a currency triggering capital flight and parallel exchange rates, excessively high rates are needed to kill domestic credit and stabilize the currency.

Countries with such flawed operating frameworks in central banks tend to have chronic high nominal interest rates in any case.

AASL’s rupee revenues went up to 48.8 billion rupees in 2023 from 32.2 billion rupees in 2022 as passenger movements increased to 7.5 million from 5.5 million with a recovery in tourism and local traffic.

Sri Lanka’s currency crisis hit in 2022 just as the island was recovering from Coronavirus pandemic triggering fuel shortages and power cuts as money printing triggered forex shortages.

From 2022 March the rupee collapsed from 200 to 370 levels an attempt to float the rupee was failed by a surrender rule (a type of buy-side pegging which pushes the exchange rate down).

In 2023, after hiking rates to kill credit, the surrender rule was removed, leading to a currency appreciation.

The airport agency also made an exchange gain of 6.1 billion rupees in 2023 against an exchange loss of 10.5 billion rupees in 2022 the rupee appreciated. (Colombo/June16/2024)

Continue Reading

Sri Lanka car import relaxing roadmap given to IMF: State Minister

ECONOMYNEXT – Sri Lanka has submitted a roadmap on relaxing vehicle imports to the International Monetary Fund, State Minister of Finance Ranjith Siymabalapitiya said as the country recovers from the worst currency crises in the history of its central bank.

The import relaxation will allow vehicles for public transport, goods transport, then motor cycles and cars use by private individuals and after that, luxury cars, Minister Siyambalapitiya said.

Luxury cars however attract the highest taxes for each dollar spent on imports.

Economic analysts have characterized vehicle import controls as a ‘cascading policy error’ that follows inflationary rate cuts, which then deprive taxes to the state and triggers more money printing and more forex shortages, requiring even higher corrective interest rates and a contraction of economic activities to save the rupee.

According to the latest IMF report car import controls may have led to revenue losses of 0.7 to 0.9 percent of GDP.

Sri Lanka started controlling imports few years after a central bank was set up in 1950 and also tightened exchange controls progressively, so that macroeconomists using post-1920 spurious monetary doctrines taught at Anglophone universities could print money through various mechanisms to suppress rates.

Sri Lanka is working with the IMF as a guide on many issues and the roadmap was submitted to the agency on June 14, Minister Siyambalapitiya said.

The IMF in an economic report released last week the plan was expected to be submitted by June 15.

Whatever the IMF’s faults, which some wags have called ‘progressive Saltwaterism’, the agency does not advocate import controls as solution to balance of payments problems, despite a Mercantilist fixation with the current account deficit in countries with reserve collecting central banks, analysts say.

Import controls have the same effect as import substation on the balance of payments, which is none, classical economists have pointed out and is now mainly a problem associated with macro economists and economic bureaucrats of so-called basket case countries.

Any pressure on the currency or missed reserves targets in the IMF program has come in the past only if the central bank printed money to suppress rates as credit growth picked up from car imports.

Sri Lanka had 3,000 items under import controls when rates were suppressed with printed money from 2020 to 2022 but eventually ended up with the worst currency crisis triggered by macro economists in the history of the country and eventual external default.

A committee made up of the Department of Trade and Fiscal Policy of the Finance Ministry, the Department of Registration of Motor Vehicles, the Central Bank and two associations representing vehicle imports were appointed to come up with the roadmap, he said. (Colombo/June15/2024)

Continue Reading

Chitrasiri Committee presents draft constitution for Sri Lanka Cricket

ECONOMYNEXT – A draft constitution for Sri Lanka Cricket, the governing body for cricket in the island, prepared by a committee headed by retired Supreme Court judge K T Chitrasiri, was presented to President Ranil Wickremesinghe today (15).

The Sri Lanka team were ignominiously knocked out of the Men’s T20 World Cup tournament this week, sparking renewed criticism of the team and the governing body.

Last November, a cabinet sub-committee was appointed to address challenges faced by Sri Lanka Cricket and provide recommendations after consecutive losses became a hot topic in parliament.

After parliament decided to remove the administrators of the sport, the International Cricket Council (ICC) Board suspended Sri Lanka Cricket’s membership.

Based on the sub-committee’s recommendations in its report, the Cabinet then appointed an expert committee to draft a new constitution for Sri Lanka Cricket.

The committee headed by judge K T Chitrasiri includes President’s Counsel Harsha Amarasekara, Attorney-at-Law Dr Aritha Wickramanayake and Chairman of the Sri Lanka Chamber of Commerce Duminda Hulangamuwa.

Deputy Solicitor General Manohara Jayasinghe, and Shamila Krishanthi, Assistant Draftsman representing the Legal Draftsman’s Department, and Loshini Peiris, Additional Secretary to the President were also on the committee. (Colombo/Jun14/2024)

Continue Reading