By Mandana Ismail Abeywickrema
Instead of finding real solutions to the
prevalent economic crises the Central Bank
has resorted to creating distractions in the
form of new indexes. The bank's intention,
it seems, is to show that everything is
hunky dory by showing various new indexes.
Since last December, the Central Bank has
been preoccupied with scrapping and
introducing new indexes to convince the
public suffering under the cost of living
burden that all's well in the country's
economic front although Sri Lanka still
holds the record for the highest inflation
rate in the region.
The latest addition to the list of indexes
is the Sri Lanka Prosperity Index (SLPI)
that was introduced last week.
According to the Central Bank, the index
goes beyond traditional measures like
economic growth to find out what makes
people feel happy and prosperous. The new
index has reportedly found that most
prosperous conditions are found in the
Western Province followed by the Central and
Southern Provinces while the Northern
Province lagged behind.
Central Bank Deputy Governor W. A.
Wijewardena has been reported as saying
researchers turned to philosophers to find
out what made people feel happy. "If he
smiles from ear to ear we can see whether he
is happy or not," Wijewardena had said.
"This cannot be measured by economic growth
or a similar indictor. Because of this,
countries searched for the causes of this
smile and measured prosperity in that way,"
he had opined.
The country's economic hub - the Western
Province dominated the Prosperity Index with
66.1 points in 2007, up 2.9 points from the
previous year. The Central Province
increased its points in 2007 by 2.4 points
to 52.9 points, while the Southern Province
gained 2.8 points in 2007 to end at 51.6
The war ravaged
scored 43.6 points up 0.3 points from 2006
Province fared better at 44.2 points, up 2.3
points from 2006, but well below Sri Lanka's
average of 52.7 index points.
Economist, Dr. Harsha de Silva, who
developed the Business Confidence Index 12
years ago, says there is a need for a
holistic way to look at people's poverty or
prosperity. Therefore, he says the Central
Bank's decision to introduce SLPI is good.
However, he said there are several issues
that needed to be addressed by the Central
Dr. de Silva notes the need for transparency
in measuring the index. "Before announcing
the decision to introduce the index, it
should be done with transparency," he said.
It has been reported that economic issues
account for 30% of SLPI while social issues
and infrastructure accounts for 45% and 25%,
According to Dr. de Silva, there needs to be
clarity and transparency when measuring the
index. "People need to know the sub
components and how they are allocated," he
said adding that there are various other
aspects that need to be clarified as well.
Citing an example, Dr. de Silva said that
there was a question on how the people in
the Northern Province were happier in 2007 than the previous one. "If this is
the case, I would go back to my drawing
board and see if the measurements are
right," he said.
He added it was also important when
developing an index to pay attention to
ensuring that there would be no need to make
alternations every now and then.
"We need to see how happy the people are
given the high inflation rate and also if
issues like good governance, rule of law and
civil rights have been incorporated in the
index," Dr. de Silva said. He pointed out
that the fundamental issue with regard to
the SLPI was the lack of transparency.
"These issues should be addressed," he said.
The success of the SLPI therefore would only
be known with time as well as the
transparency in which the whole process is
The government has already scrapped two long
established indexes, the Colombo Consumer's
Price Index (CCPI) and the Sri Lanka
Consumer's Price Index (SLCPI).
Last December, in a bid to mask the
galloping level of inflation, the government
decided to introduce a new consumer price
index through the Census and Statistics
Department called the New Colombo Consumer
Price Index (CCPI-N). CCPI(N) replaced CCPI,
which existed since the early 1950s as the
barometer of the cost of living.
According to analysts, the sustained rise in
the level of inflation caused much concern
both locally and internationally and the
formulation of the new index was widely
believed to reflect a lower inflation figure
by reconstituting the 'Market Basket.' The
rising inflation has been widely attributed
to serious macroeconomic mismanagement by
the government and the Central Bank.
The government, after running out of every
possible excuse - from the war to the rising
world oil prices - to hoodwink the masses on
the reasons behind the rising cost of living
and inflation, turned to the CCPI itself for
salvation. In was not lost on the public
that the new 'improved' consumer price index
was hastily introduced at a time when the
CCPI was continuously recording significant
Addressing a forum of financial
professionals, Treasury Secretary, Dr. P.B.
Jayasundera last year found fault with the
former CCPI, saying that the index never
produced annual average inflation below 10%
for the last 30 years. The Treasury
Secretary however overlooked that fact
during the brief reign of the UNP - from
2001 to 2004 inflation was down to as low as
4% as per the very same index he was
condemning and is recorded for posterity in
the Central Bank reports.
Dr. Jayasundera had said that the galloping
index numbers were due to the fault of the
index overlooking the poor macro-economic
management based on weak policies.
Meanwhile, IMF directors noted in the
statement issued also last year following
the Article IV consultations between IMF and
Sri Lanka that the country's growth has been
underpinned in part by expansionary fiscal
and monetary policies, leading to an
increase in macroeconomic and external
They said in particular, that inflation has
accelerated, the external current account
deficit remains large, and gross official
reserves are relatively low. The directors
urged the authorities to tighten
macroeconomic policies, while acknowledging
that a return to political stability will
also be crucial in underpinning sustained
economic progress going forward.
Happiness measured by votes
A presidential advisor, who is also a
legislator, was last week reported to have
said politicians measured how happy people
were by the number of votes they got.
However, SLPI would now have to show the
happiness and prosperity of the people given
the present economic conditions. How long
the index would prosper and whether it too
would be subjected to the same fate as the
CCPI and SLCPI, only time would tell..
No change in fuel prices
Petroleum and Petroleum Resources Minister
A.H.M. Fowzie says that the local fuel
prices would not be reduced till the end of
the month at least. He told The Sunday
Leader that any adjustments in local fuel
prices could only take place after the end
of the month when the order would be placed
for the next shipment.
According to Fowzie, the fuel that is
currently being sold in the local market was
purchased at US$112 per barrel. "Although it
is down to US$103, we are still selling fuel
purchased in the previous shipment. The next
shipment would be end of September," he
said. "At the end of the month we can take
into consideration all the price
fluctuations and then decide," he added.
Fowzie noted that CPC has managed to reduce
its losses from Rs.4,000 million to Rs.600
million. However, he said that by selling
fuel at current market prices, CPC incurred
a loss of Rs.28 on a litre of kerosene, 23
cents on a litre of diesel and a profit of
Rs.8 on a litre of petrol.
TB suspension temporary - CB
The Central Bank says its decision last week
to suspend 91-day Treasury Bills is
temporary and that it would be brought back
in a few weeks time.
Bank officials told The Sunday Leader that
the 91-day T-bills would be auctioned again
in about three to four weeks time and
further stated that the suspension of the
91-day T-bills along with easing inflation,
would gradually reduce market interest rates
The Central Bank after suspending 91-day
T-bill auctions has only sold 182-day and
364-day bills to investors.
Banks in the country base their own interest
rates off the 91-day T-bill rate. According
to the Central Bank, rates therefore have
seen a drastic decline when 91-day T-bills
Superintendent of the Bank's Public Debt
Department, C.J.P. Siriwardena was quoted by
a foreign news agency last week, saying
"There will be gradual downward movements in
interest rates in the remaining period of
the year," adding that the bank would
recommence the auction of 91-day T-bills
when rates stabilised. However, he had
declined to reveal the level. The Central
Bank has so far declined to make any
forecast on where rates would be by the end
of the year.
The 91-day T-bill rate hit a peak of 21.30%
last December, when the government borrowed
heavily from the local market. Officials
from the Central Bank told The Sunday Leader
that heavy buying pressure on 91-day T-bills
and the bank's goal of spreading out T-bill
investments to medium and longer terms, were
the main reasons behind the decision to
temporarily suspend the bills. Officials
also said the bank had on earlier occasions
also temporarily suspended the 91-day T-bill
It has been reported that this latest
suspension was the third time the bank has
suspended the 91-day T-bill auctions since
May 6, when it opened up 10% of around Rs.
375 billion worth of T-bills for foreign
investors. Since then, the 91-day T-bill
rate had fallen 205 basis points to 16.46%
until the last auction.