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COL
- A kite with out a string
 By
Mandana Ismail Abeywickrema
Sri
Lankan masses apart from facing a drought or floods are now
engaged in a bitter battle - the battle to defeat the rapidly
escalating high cost of living.
The
increasing cost of living has now been compared to a kite
without a string, rising higher with no control whatsoever,
leaving the masses waiting for a deus ex machina to save them.
The
government too is now feeling the pressure as it is no
longer in a position to cushion the masses from the
increasing cost of fuel and essential consumer goods. The
initial effort by the government to subsidise goods to
stabilise the cost of living did not prove to be a viable
solution as apart from emptying the country's lean coffers,
it also put pressure on the exchange rate creating
volatility.
Price
adjustments
As
a result, the government was left with no option but to adjust
prices accordingly. Also, in order to maintain a budget
deficit of about 8% GDP, price adjustments, especially in fuel
was inevitable.
The
first price hike under the UPFA came when the government did
not renew the agreement to subsidise gas. From then on, people
have experienced hikes in diesel, petrol, electricity,
transport fares and several consumer goods including rice and
milk food.
Within
a short span of two months, the country has experienced
several fuel price hikes mainly attributed to the increasing
global fuel prices, now over US$ 50 per barrel. However, for
the country to benefit from declining global fuel prices, a
steady rupee is a must and further depreciation would only
pull the country further into a quagmire.
The
increase in fuel prices, especially diesel, has had a
cascading effect on the country's economy on the whole. What
with the increase in transport charges, prices of goods have
seen an increase.
Increases
in the petroleum sector began on July 23 soon after the
provincial elections when the price of a litre of petrol was
increased to Rs. 65 from Rs. 57. On August 13, the price was
further increased to Rs. 68 with the latest being the
September 24 increase of Rs. 2 in a litre of petrol within the
Colombo city limits to Rs. 70.
Diesel
was first increased on August 13 by Rs. 4 to Rs. 36. On
September 24, a litre of diesel within the Colombo city limits
was increase to Rs. 44 while in outstations, the prices were
increased to Rs. 42.
However,
the price of kerosene has not been increased.
Bus
fare hikes
Bus
fares saw an increase with the latest fuel hike, initiated by
the Private Bus Operators Association (PBOA) and the fares of
CTB busses will be brought on par with the private bus fares
tomorrow (4) and railway fares too are expected to see an
increase in a few weeks.
Speaking
to The Sunday Leader, Transport Minister Felix Perera said
that although the PBOA requested for a 15% increase in fares,
after discussions, it was brought down to 6-7%.
Perera
said that the first sector charges have only been increased by
50 cents to Rs. 4.
As
for an increase in train tariffs, Perera said that the matter
is yet to be decided.
According
to the revised bus fares, while the Rs. 5 fare remained the
same, fares from Rs. 6 - Rs. 27.50 were
increased by Rs. 1, fares from Rs. 27.50 - Rs. 40 by Rs.
2 and fares over Rs. 65 by Rs. 3. The maximum increase was
seen in the Rs. 247 fare, which was increased to Rs. 260.
However,
an increase in diesel prices has also resulted in an increase
in goods transportation as well. Prima last week decided to
add a Rs. 10 transport charge to for transporting flour to the
market.
The
increase in the country's fuel prices have created an impact
on power generation as well. Although the Ceylon Electricity
Board (CEB) was on the Treasury's subsidy receivers' list,
cabinet last month approved a 7% increase in electricity
prices.
Chairman,
CEB, Ananda Gunasekara told The Sunday Leader that there would
be an increase in electricity tariffs by 3.8% come November 1.
However,
Gunasekara pointed out that since the increase would be quite
minimal, it would not make a difference when compared with the
cost incurred for the generation of a unit.
He
further noted that the CEB is running at a loss amounting to
about Rs. 800 million per month.
Removing
subsidies?
The
government has also hinted at removing the subsidy on diesel
completely to be on par with international prices, stating
that every country has been affected by the global scenario.
Be
that as it may, although the Ceylon Petroleum Corporation
(CPC) is being subsidised by the Treasury, the institution is
still running at a huge loss.
The
CPC at present is incurring a loss of Rs. 750 million per
month.
According
to Chairman, CPC, Jaliya Medagama, CPC is yet to receive its
dues from public sector enterprises and the dues from CEB
alone amount to Rs. 1.3 billion.
Medagama
also noted that the CPC was still being subsidised even with
the recent price revision - Rs. 2 for every litre of petrol
and by Rs. 8-9 for diesel.
However,
the highest subsidy is for kerosene - nearly Rs. 20 per litre.
Speaking
of the proposal made by the PBOA for the government to remove
VAT on diesel in order to reduce diesel prices, Medagama said
it would be one way of addressing the issue.
The
PBOA last week requested the government to reduce diesel
prices by taking off VAT in order to eliminate the necessity
for a further bus fare hike.
Medagama
noted that it is an issue, which the government would have to
look into.
When
asked how long CPC would be subsidised, Medagama noted that
the Treasury has indicated to CPC the difficulty in continuing
with the subsidy thereby granting permission for a price
revision.
Govt.
expenditure
However,
although the fuel subsidy has been rectified to an extent, the
increase in the fertiliser subsidy by Rs. 300 is expected to
cost the Treasury an added Rs. 900 million till the end of the
year.
Under
the new pricing formula, a 50 Kg bag of fertiliser would cost
Rs. 1050.
The
government's action to bring down the escalating rice prices
by importing rice from Pakistan and India would also add to
the pressure on the state coffers.
Apart
from the subsidies, the state also has to cough out funds for
Samurdhi, as well as the graduate employment scheme and also
make provision in the forthcoming budget for the promised
"impressive" salary hike to the public sector.
Although
aimed at easing the burden of the rising cost of living, if
the "impressive" salary hike is not reflected in the
country's productivity on the whole, Sri Lanka would yet again
face an economic quagmire.
Under
these circumstances, while money from state coffers have been
pulled out to settle subsidy bills and other welfare measures,
the masses are yet to receive any form of tangible relief.
It
is however interesting to note that all these have been
allowed to pass the government, which before assuming power
and soon after pledged that consumers would be protected from
global market prices, while the Janatha Vimukthi Peramuna (JVP)
- the key coalition partner of the UPFA - pledged to remove
the "world market plug." (See box)
Since
of late, these same politicians have called for the masses to
bear "part of the costs" as the money saved as a
result could then be utilised for development activities.
JVP's
Agriculture Minister Anura Dissanayake recently stated that
the consumers are suffering due to the rising fuel and
transport prices, adding that the masses have been burdened
with a heavy load as a result.
However,
he blamed the present situation on the country's market
economy.
The
JVP, since of late has been voicing its disapproval over the
present subsidy scheme, and has requested for a change. (See
box)
The
Central Bank last week released the second quarter report for
2004.
Slower
growth in 2Q
The
Central Bank has stated that in the second quarter of 2004,
Gross Domestic Product (GDP) grew, in real terms, by 5.2% over
the corresponding quarter of the previous year. This is a
continuation of the growth momentum that began in the second
half of 2002, although the growth in the second quarter of
2004 was lower than the growth recorded in the corresponding
quarter of the previous year, 5.6%, and in the first quarter
of 2004, 6.2%. This deceleration was mostly due to the
deceleration in factory industry, particularly for the export
market, in this quarter and the negative impact of the drought
in certain districts that affected the 2003/2004 Maha season
agricultural production as well as hydro power generation.
Nevertheless, the growth in the first half of 2004, at 5.7%,
just exceeded the first half growth in 2003 at 5.6%. Based on
the first half performance, and taking account of the impact
of the drought on Yala agricultural production, as well as the
increase in fuel prices on all economic sectors in the second
half of the year, GDP growth for the year as a whole is
projected in the range of 5 - 5.5%.
Inflation
increases
According
to the Monetary Policy Review for the month of September
released by the Central Bank, the point to point growth in
broad money (M2b) was 17.6% in July, while reserve money
expanded by 19%. The main causes for the growth in money
supply have been the higher credit expansion to the private
sector and the public sector. The board has also noted the
excessive growth in public sector credit, largely arising out
of subsidies given on imported commodities such as petroleum
products, wheat flour, and other related goods and services.
The
board was of the view that the present issues can be addressed
by phasing out subsidies, particularly by revising domestic
petroleum prices in line with international prices and that
such a move would support interest rate and exchange rate
stability.
The
report further states that consumer price inflation as
measured by all price indices continued its upward trend.
The 12 month moving average of the Colombo Consumers'
Price Index (CCPI) rose from 4.3% in July 2004 to 4.9% in
August. A similar
trend was observed in the Sri Lanka Consumers' Price Index (SLCPI),
which rose from 1.7% in June to 2.3% in July. Faster rates of
increase of 10.5% and 8.3% were observed in the point to point
changes of the CCPI and SLCPI, respectively.
The upward pressure on prices is partly due to supply
side factors, such as the continued increase in oil prices and
lower agricultural output as a result of the drought.
On
the external front, the trade deficit has widened in June as
import expenditure has grown faster than exports, largely due
to the continued rise in the international price of crude oil
and in other commodity prices. The report states that
international prices of other major consumer good imports,
such as wheat flour, sugar and milk powder have increased by
23%, 16% and 6%, respectively, so far in 2004. Lower
compensating inflows to the services, and capital and
financial accounts have resulted in a deficit in the overall
balance of payments.
Official
reserves decline
The
developments in the external sector have increased the
pressure and volatility in the foreign exchange market.
According to the Board's report, although the Central Bank
intervened in the foreign exchange market to reduce the
excessive volatility in the exchange rate, the rupee
depreciated by 6.2% vis-…-vis the US dollar during the year
to August 2004. During
this period, the rupee also depreciated against the Sterling
pound (7%), the Japanese yen (3.9%), the euro (2.3%) and the
Indian rupee (4.8%). Reflecting these currency movements the
24 currency nominal effective exchange rate (NEER, 1999=100)
depreciated by 5.1%, while the 24 currency real effective
exchange rate (REER, 1999=100) depreciated by 2.3% by end
August 2004.
Gross
official foreign reserves have declined from US dollars 2,329
million (equivalent to 4.2 months of imports) at end 2003 to
US dollars 1,953 million (3.2 months of imports) at end July
2004 due to the intervention of the Central Bank in the
foreign exchange market and foreign debt service payments.
The total foreign reserves of the country have declined
from US dollars 3,218 million (5.8 months of imports) to US
dollars 3,058 million (5.0 months of imports) at end July
2004.
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New
subsidy scheme needed
Criticising
the present subsidy scheme as of no use, the JVP has
since of late voiced its disapproval of the system.
JVP
parliamentarians openly criticise the present scheme,
stating that they subsidise the affluent and the needy
both, adding that in most instances those benefiting are
the affluent ones.
JVPers
are of the opinion that a subsidy scheme be formed to
only subsidies those in need.
Party
Secretary, Tilvin Silva wrote an official letter to
President Kumaratunga stating the JVP's position with
regard to the present subsidy scheme and the need to
introduce a scheme, which recognises and subsidies only
those in need of relief.
The
JVP's statement has been backed by several other
parties, including the New Left Front, which called for
the government to take steps to reduce prices of
consumer goods and diesel as it has affected the
"poor man's transport system."
Pressure
on Treasury eased
Treasury
Secretary Dr. P. B. Jayasundera speaking to The Sunday
Leader explained that the government could now absorb
the increase in the fertiliser subsidy since the
petroleum subsidy has been corrected.
Dr.
Jayasundera went on to say that the pressure on the
Treasury has been eased with the increase in bus fares
to compensate the fuel hike.
He
also pointed out that revenue increases as a result of
the price increases in cigarettes and liquor as well as
the new import duty on onions has brought in additional
revenue to the Treasury.
Dr.
Jayasundera explained that while neutralising the
overall deficit, the Treasury is also balancing the
subsidies, adding that the recent increase in the
fertiliser subsidy was made to support the agriculture
sector.
He
observed that the government is trying to stabilise the
situation, adding that with regard to providing relief,
priority would be given to food and transport.
He
noted that the vegetable prices have seen a reduction
since of late, adding that the government has taken
steps to address the issue of high rice and lentil
prices.
Speaking
about the increases in fuel and electricity, Dr.
Jayasundera said that the most important is to look
after the commodities and services to ordinary people,
adding that while people could cut down on the
consumption of electricity, food is a basic necessity.
However,
he explained that Sri Lanka too would have to adjust to
the increasing global prices, which has had an impact on
every country.
"If
we don't increase, the impact would be far worse,"
Dr. Jayasundera said.
He
further observed that if prices were not revised, CPC
would not have been able to survive.
Dr.
Jayasundera also pointed out that the reason for the
depreciation of the rupee in recent months was the high
cost of oil and with the price adjustments, the pressure
has eased.
Speaking
of the "impressive" salary hike promised for
public sector workers in the forthcoming budget, Dr.
Jayasundera while maintaining that the amount is yet to
be decided said that it would also increase productivity
in the sector.
However,
for 2004, Dr. Jayasundera said that the Treasury would
have to pay Rs. 10 billion for subsidies alone. This
does not take into account the Rs. 600-700 million for
the remaining months of the year for the graduate
employment scheme and Samurdhi will also add up to make
the bill for the year quite a hefty one.
For
the remaining three months of the year, the Treasury is
expected to spend about Rs. 2-3 billion on fuel
subsidies.
Rupee
depreciates by 6.2%
The
domestic foreign exchange market, which experienced
relatively higher volatility during 2004 stabilised
around Rs. 103 per US dollar towards mid August. Lower
foreign inflows and higher import outlay contributed to
the volatility in the foreign exchange market. The
Central Bank intervened in the market to contain
excessive volatility, though at the cost of declining
official reserves.
The
rupee depreciated by 6.2% to Rs. 103.12 per US dollar by
end August in comparison to the depreciation of the
rupee against the US dollar by 0.06% during the same
period in 2003. The rupee depreciated only by 0.07% in
the first quarter of 2004 but depreciated at a higher
rate thereafter. The sharper depreciation during the
second quarter of 2004 was mainly due to the increased
deficit in the balance of payments which rose to US
dollars 223 million by end June from the deficit of US
dollars 40 million during the first quarter of 2004. The
appreciation of the US dollar against most major
international currencies also contributed to the higher
depreciation of the rupee against the US dollar.
Currencies of India, Pakistan, Bangladesh, Singapore,
Indonesia, the Philippines, and Thailand also
depreciated against the US dollar during 2004.
Then
and now
The
UPFA in the run up to the April 2 elections and soon
after voiced confidence in its ability to cushion
consumers from increasing global prices and further said
that unlike the previous regime, the UPFA would take the
burden upon itself and shelter the consumers.
However,
what followed is history now, but below are some of the
statements made by UPFA politicians early this year.
JVP
Propaganda Secretary, Wimal Weerawansa on March 3
addressing a public gathering said, "the country's
cost of living has gone up. It has been manipulated in
such a way that whenever there is a global increase, the
country too would simultaneously increase its prices.
The plug in the form of the country's fuel bill has been
connected to the switch in the form of global prices and
as a result any increase globally would mean an
automatic increase in Sri Lankan prices as well. Ranil
Wickremesinghe says he brought the country to a plus
growth rate, but he did it by not considering the plight
of the poor in the country."
On
June 21, Power and Energy Minister Susil Premajayanth
addressing a media gathering said, "there is a Rs.
300 million loss for the CPC every month. For every
litre of petrol, diesel and kerosene that is sold, the
corporation incurs a loss. We have taken all that to one
place and are using an alternative method. We know that
if we increase the fuel prices, the cascading effect it
would have on the economy would be much larger. The
opposition, which now talks of economics should know
that unlike during their time when everything was
increased due to increasing world market prices, we, the
UPFA won't do that. That is the difference between the
two governments. We have absorbed the subsidy and have
cushioned the consumers."
Then
on July 5, addressing a rally, Wimal Weerawansa said,
"people have to understand that if the UNP was in
power the fuel price would be 30% more than it is now.
It has been stopped by the UPFA."
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A
never-ending
struggle
By
Marianne David
For
the man on the street, the Central Bank's weekly economic data
and indicators do not mean a thing.
Their
fears revolve around the increasing cost of living and how
they are going to make ends meet if the desperate situation
they are already in, worsens.
Caught
up in a terrifying vortex, where food, electricity and water
bills, fuel, school fees and tuition fees for children, etc. -
the endless list of expenses - are constantly on their minds,
consumers are being pressed on all sides.
There
seems to be no relief for the people who are already
struggling to make ends meet, even when it comes to purchasing
essential consumer items.
Paying
more
While
Central Bank data lists prices for consumer items - and these
prices are reflected similarly in some supermarkets - most of
these prices are way below the actual amount the general
public pays for the same items.
With
the increases in travel fares, fuel, consumer items and other
essential items, day-to-day living is turning out to be a
constant struggle.
This
week, according to Central Bank indicators, some of the
vegetables prices listed per kilo were: pumpkin - Rs. 20,
beans - Rs. 60, carrots - Rs. 40, tomatoes - Rs. 25.
However,
consumers buying vegetables from wayside stalls were charged
Rs. 5 to Rs. 10 more for these items and when it all adds up,
the burden on the consumer is almost unbearable.
The
majority of families in Sri Lanka have only one or two
breadwinners and most often, among the dependents, also have
children of school-going age to support, and for them the
increasing cost of living is a nightmare.
Most
of them say they have seen an increase of about Rs. 2,000 to
Rs. 3,000 in the monthly amount they spend on consumer items
over the last few months.
"I
buy the same list of items and what cost Rs. 3,000 in January,
cost me Rs. 5,000 last month and I dread to think of what the
amount will be this month," said Rukshan Subasinghe, a
computer operator. Rukshan is the sole wage earner in his
family and his wife and young son are dependent on him for all
their needs.
Anura's
story is on the same lines - the only exception is he has two
young children to feed, and a lot of money is spent on milk
food, which is an absolute necessity.
"We
can't bear the price hikes any more. As it is, I have to buy
about three milk packets a week and even the price of milk
food has gone up. We need around Rs. 8,000 a month for food,
including milk and I spend Rs. 40 a day for bus fare alone.
With the bus fare hikes as well, the costs are
unbearable," he said.
The
increasing cost of living is surely a nightmare - and for the
majority of the people, for whom making ends meet is a battle
that is fought on a daily basis, the continuing price hikes
seem endless.
"There
is no end to this," says Nimal, a three-wheeler driver.
"People say we charge too much but we have no choice now.
Everything is going up in price. We spend about Rs. 2,000 more
on food now than we did six months ago."
The
prices that have risen continually and drastically, according
to consumers, are those of sugar, rice and dhal.
According
to a boutique owner, his boutique buys a kilo of dhal at Rs.
78 and sells it at Rs. 82. In some places a kilo of dhal is
sold for up to Rs. 88. A kilo of sugar costs Rs. 40 and the
price of rice has reached an all-time high.
Increasing
prices
According
to Central Bank indicators, a kilo of samba rice is now Rs. 50
and kekulu, Rs. 45. Six months ago, in March, according to the
same indicators, samba cost Rs. 38 and kekulu, Rs. 34.
Going
by the Central Bank indicators alone, prices in almost all
consumer items showed an increase in April over the previous
month, except for kekulu rice and Balaya fish, which saw a
decrease of Rs. 2 each and tomatoes which decreased from Rs.
34 to Rs. 25.
Other
items however showed a drastic increase: beans increased from
Rs. 32 to Rs. 60, carrots from Rs. 44 to Rs. 50, potatoes from
Rs. 56 to Rs. 65, big onions from Rs. 35 to Rs. 40.
By
September, according to Central bank indicators, the vegetable
prices were as follows: pumpkin - Rs. 20, snake gourd - Rs.
20, ash plantain - Rs. 35, beans - Rs. 58, carrots - Rs. 34,
tomatoes - Rs. 20, potatoes -Rs. 60, big onions - Rs. 50,
dried chilies - Rs. 140.
The
cost of eggs has also increased from Rs. 3.72 in August to Rs.
5.40 in September.
The
cost of fish increased drastically in May. Going by Central
Bank indicators, in March, fish was priced as follows per
kilo: Kelawalla - Rs. 180, Salaya - Rs. 58 and Paraw - Rs.
178.
By
April the prices were: Kelawalla - Rs. 190, Salaya - Rs. 60
and Paraw - Rs. 190. In May the prices were: Kelawalla - Rs.
252, Salaya - Rs. 73 and Paraw - Rs. 242.
The
prices for the week ending September 24 were: Kelawalla - Rs.
222, Salaya - Rs. 50, Balaya - Rs. 206 and Paraw - Rs. 206.
Increases
in travel fare, electricity and fuel prices among others are
adding to the burden people are forced to endure, and 'what
next?' seems to be the question on the minds of the people,
who are so far braving the storm in the only way they can - by
cutting down and tightening belts.
Struggling
to survive
"We
are finding it a struggle to survive, things are so expensive.
My daughter is doing her advanced level examination now so a
lot of money has to be set aside for tuition fees as well. I
used to spend Rs. 11 on bus fare, then it became 12 and soon
it will be 13," said Malini, who works for a small salary
and is the sole breadwinner in her family.
Meat
products have not been cheap to purchase either, with the
price of chicken going up to Rs. 130 for 500 grammes in some
areas.
"We
can't afford to buy fish and most Buddhists do not eat beef so
we are limited to chicken most of the time. With the
continuing price increases, even vegetables prices are on the
rise. We earn barely enough to live and if this situation
continues, I don't know what the people are going to do,"
said Roshan Jayasena, a three-wheeler driver.
Gamini
Fernando and his family of four, from Galle, used to eat rice
for lunch and dinner but now he says they are having bread for
dinner because it is cheaper.
"Everything
is increasing in price. The cheapest loaf of bread is Rs. 13
in the shop near my place and we buy that. In our area there
has been only a slight increase in vegetables but flour and
rice is expensive. I also have to pay van fees for my children
and their tuition fees, etc. Bus fares are also high and will
increase even more soon. We are finding it very hard to
manage."
According
to Rohana, a vegetable seller in Ratmalana, the prices of
vegetables have increased only slightly but they are forced to
charge more since they too are affected badly by the
increasing cost of living.
"We
don't even sell some vegetables now because of the high price,
and just bring a few that we are sure will sell instead,"
he said.
Says
Karunathilleke, who sells vegetables from the back of a lorry
in Wellawatte junction, "It's not easy to live on the
money I earn selling vegetables but I am somehow going on so
far."
And
the never-ending cycle continues - the sellers charge more in
order to survive and meet other increasing expenses and the
people keep cutting down on expenses as much as they possibly
can.
Tightening
of belts may be good and fine but there is a limit to how much
one can cut down on and when it comes to essential items,
regardless of the price, one has no choice but to purchase
these items.
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"Don't
talk to us about COL"
The
term 'cost of living' is fast turning out to be one that
is cursed. A woman in rags walking on the road in Mount
Lavinia with two small children who are barefoot sums it
up thus: "Don't talk to us about life and the cost
of living. We don't care about the government or
politics. The children are hungry and plead for
something to eat or drink and we have no money."
Another
woman who seems better off walks by and hearing her
tale, buys the children two packets of chilled milk, and
they are content for now. But they have not eaten all
day and the hunger pangs are bound to return. What then?
The
poor woman is not a beggar - she works in houses to earn
a little money for food and lives in a shack on the
beach. But there is barely enough work coming her way
now, and carting her two children along, she walks the
streets reduced to begging at times, so that she can buy
her children something to eat.
"This
woman walks the streets looking for work all the time,
with her children. More and more people are finding it
hard to survive and in the months to come, people may be
forced to steal in order to fill their stomachs and
those of their children. Business is also not so good
now and people are buying in lesser quantities because
things are going up in price," said a shopkeeper
nearby.
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