By Mandana Ismail Abeywickrema
The so called economic stimulus package
presented by the government last week as a
New Year gift for the people has come under
fire from many sectors claiming it to be
insufficient to revive the country's
Following a closer look at the relief
package economic analysts are now calling it
eyewash presented to mislead the public,
especially given the downward trend in the
world fuel and food prices. Analysts say
that the reduction in local fuel and other
commodity prices do not in any way reflect
the huge decline in global prices.
Exporters and many industrialists meanwhile
lamented that the relief offered was too
little too late and insufficient, given the
massive downfall experienced in many export
related industries due to the government's
delay in addressing their issues.
The economic stimulus package for consumers,
industrialists, exporters and the plantation
sector, worth a total of Rs. 16 billion, was
announced last week after a special cabinet
meeting was summoned by President Mahinda
Rajapakse on December 30, 2008.
Soon after the cabinet meeting a press
briefing was called at 8 p.m. to inform the
media of the relief measures approved by
cabinet for various sectors as well as the
The government announced many relief
measures for the export sector as well as a
minute reduction in fuel prices. The
decision to reduce a litre of petrol by Rs.
2 and diesel, kerosene and furnace oil by Rs.
10 raised many an eyebrow given the Supreme
Court directive to reduce the price of a
litre of petrol to Rs. 100 per litre.
According to the main opposition UNP, given
the decline in global fuel prices, a litre
of diesel could be sold at Rs. 32, petrol at
Rs. 55 a litre and kerosene at Rs. 26 a
UNP Parliamentarian Ravi Karunanayake told
the media last month that under the current
global oil prices where a barrel is trading
around US$ 36, petrol should cost only Rs.24
a litre while the government sold it at
Rs.122 a litre, ignoring the SC directive.
However, presenting the economic stimulus
package, the government said that apart from
providing relief, its aim was to target a 6%
growth rate for 2009.
Analysts have however questioned the
viability of this endeavour.
Economist, Dr. Harsha de Silva said the
proposals in the package were not
sustainable and would not fuel long-term
He says that the only way the government
could stimulate the economy was to cut down
taxes and bring down interest rates.
"Unless you bring down the interest rates,
it is not possible to sustain growth," he
According to Dr. de Silva, most of the
economic growth recorded was driven by the
He said that given the decline in global
commodity prices, it seemed as if the
government was scooping out huge profits.
Citing an example, Dr. de Silva said that
the government's decision last month to
reduce milk powder prices by Rs. 15 was a
move to mislead the people. He explained
that milk powder that was priced at US$
3,000 a metric tonne at the beginning of
2007 saw a drastic increase in the global
market by mid 2007 as it reached US$ 4,500 a
During this period the price of a 400 gram
pack of milk powder in the local market
increased from Rs. 195 to Rs. 285, which was
a 150% increase given the 50% increase in
Although various ministers made statements
that the era of cheap food was over, the
global milk food prices once again reduced
to US$ 3,000 per metric tonne. However,
local prices have not been adjusted
Dr. de Silva said that when the global milk
powder prices reduced to US$ 2,000 per
metric tonne last December, the government
announced a reduction of Rs. 15 in local
It is indeed interesting that a pack of milk
powder that was priced at Rs. 195 when a
metric tonne of milk powder was US$ 3,000
was increased to Rs. 285 when the prices
increased and has now been subjected to a
reduction of only Rs. 15 when the global
prices have plummeted to US$ 2,000 per
Should be reduced
Dr. de Silva says that the prices of fuel
and other essential items should be reduced
in keeping with the global prices.
It must also be noted that the government
that announced an economic stimulus package
just before the dawn of the New Year had
slapped a plethora of taxes that would have
a direct impact on the average Sri Lankan
Although the 15% VAT component was reduced
to 12% through the 2009 budget, economists
have pointed out that the reduction has not
affected the government's tax collection due
to the imposition of a range of new taxes as
well as the increase of several existing
taxes and cess.
According to calculations an additional Rs.
30 billion burden would be placed on the
shoulders of the people in the form of tax
payments for 2009. (Rs. 1,500 in additional
taxes to be paid by each person.)
In the 2009 budget, there have been
increases in cess on imported items, notably
consumer goods, food items and even animal
According to the Cabinet Memorandum of the
economic stimulus package, the President in
his capacity as the Finance Minister has
called for the continuance of a number of
cess imposed on imported items and has even
proposed to increase it where some
commodities are concerned.
However, it has also been stated that given
the decline in global prices, the
continuance of the cess or an increase in it
would not result in a price increase in the
local market. Whether this would actually be
the case in reality is another question.
Given past experience, it would not be
surprising to see an increase in the prices
of several imported products due to the
increase in import cess.
According to analysts, any tax burden is
ultimately passed on to the consumer who is
always at the receiving end.
High commodity prices
The masses who have been burdened with high
commodity prices and an intensifying battle
for survival amidst a soaring cost of living
for the most part of last year, were hoping
for some relief in 2009 with the declining
global fuel prices.
All they have so far been offered is just a
meager reduction in prices that would not
have a massive impact where personal
finances and saving are concerned.
Meanwhile, the consumers would be faced with
another shortage of rice in the market very
soon. According to rice wholesale dealers,
the government's failure to increase the
price of samba rice and the mill owners'
failure to supply samba at Rs.65 to the
wholesale market has led to a shortage of
samba rice in the market.
It has been reported that the rice mill
owners who had initially agreed to supply a
kilo of samba rice at Rs. 65 have now gone
back on their word.
President, Old Moor Street Importers'
Association (OMSIA), K. Palaniyandi, who is
also a rice wholesale dealer, said that due
to the mill owners' failure to provide samba
rice at Rs.65 and the government's failure
to allow a price increase, there was a rice
shortage in the market.
"There are two options to tide over the
situation. The government should either be
flexible and allow the rice traders to sell
samba around Rs.75 - Rs.80, or should take
the rice mill owners to task for increasing
their prices from Rs.65 to Rs.70. Earlier
when we were supplied samba for Rs.65 we
sold the stock to the retail traders for
Rs.67 and they in turn sold it to the
consumers at Rs.70.
"But with the sudden price increase by mill
owners we are unable purchase rice for Rs.70
and sell it at the controlled price. That
was why we requested the government to
intervene and to allow us to increase the
selling price of samba but to no avail,"
Palaniyandi had told The Sunday Leader's
sister paper The Morning Leader last week.
He had also said that due to the current
rice shortage, the wholesale rice market has
been badly affected over the past few weeks
and many wholesale shops were on the verge