Targeted subsidies under attack

In its 2007 Annual Report, the Central Bank (CB) said targeted subsidies, as against blanket subsidies, were a more efficient way to help the poorer members of society, especially those using petroleum products. However, some critics say most targeted subsidies do not go to those who needed the subsidies, and that targeted subsidies also increased the chances of corruption and misuse, as seen in the case of the Samurdhi welfare programme.

The CB said the government has been providing a monthly Rs. 100 kerosene subsidy to recipients under the Samurdhi scheme, and that in August last year made a one-off payment of Rs. 4,000 to owners of fishing boats.

The estimated cost of these measures was Rs. 632 million. In January this year, the government reduced the VAT on petrol from 15 percent to 5 percent, a measure that is expected to reduce government revenue this year by Rs.7,400 million.

Dr. Muttukrishna Sarvananthan, principal researcher at the Point Pedro Institute of Development, said he had reservations about targeted petroleum subsidies to Samurdhi recipients and fisherpersons, or any subsidy for that matter. He said the majority of Samurdhi recipients were actually “not poor”.

“This subsidy is a waste of scarce resources,” he stated. “Besides, the one-off fuel subsidy to fisherpersons can be abused by government officials disbursing this subsidy, or by the recipients themselves, who may not be fisherpersons.”

Dr. Sarvanathan pointed to last year’s huge fraud involving the fertiliser subsidy. “In a corrupt country like ours, targeting is a waste of scarce resources,” he said. “It not only consumes a lot of money, it is also very time-consuming for the public servants. I do not endorse the government’s reduction of VAT on fuel imports from 15 percent to 5 percent.”

He said subsidies compromised the government through excessive and unpredictable outlays and resulted in loss of revenue and distorted market prices.

Sri Lanka imports the country’s entire petroleum requirements. Total expenditure on petroleum imports increased to US$ 2,487 million in 2007, with the average import price increasing to US$ 69 per barrel. Total oil import expenditure this year is expected to increase to US dollars 3,122 million. (NG)