Sri Lanka announces subsides with an eye on elections

Sri Lanka unveiled a 16 billion- rupees ($141 million) stimulus package that includes cutting fuel prices and removing some taxes saying it is needed to stimulate the economy in the face of a global economic downturn.

However analysts believe that the subsidies and tax cuts are being announced by the government with a view of holding elections in the first half of 2009.

"It's an intensive package for exporters and stimulus package for growth, so we expect the cost of living will get reduced ultimately," cabinet spokesman Anura Priyadarshana Yapa told Reuters.

The government, in a special cabinet meeting held passed the package which includes cuts in the price of fuel and gas, concessions for industry and subsidies for main exports such as tea and rubber.

Subsidised Fuel & Energy

Diesel, kerosene and furnace oil prices were cut by 10 rupees a litre and

gasoline by 2 rupees a litre. The government has reduced diesel prices by 12.5 percent to 70 rupees, petrol by 1.6 percent to 120 rupees, and liquefied petroleum gas by more than 10 percent.

As part of the package, three-wheeler taxis will receive 75 litres of fuel a month at a reduced price of 20 rupees a litre.

For industries, a 15 percent surcharge on electricity will be lifted from tourism, apparel, leather and rubber industries.

Also as part of the package, to help exporters, the government will give an incentive payment of 5 percent of revenue to companies that do not fire workers.

Rubber

As part of the economic assistance package, the government announced the removal of taxes on rubber exports, supply of subsidised fertiliser to farmers and government purchase of the commodity to support prices.

However, the Rubber manufacturers do not think the government plan would benefit the industry and say that the government has to come up with a new pricing formula, as the issues faced by the industry are mainly due to the drop in sheet and crepe rubber prices.

Sri Lanka’s rubber industry is facing a severe crisis due to the decrease in demand and fall in prices.

Tea

According to the assistance package, the government will sell fertilizer to small tea farmers at 1,000 rupees a ton until the price of green leaf, an industry benchmark, reaches 45 rupees.

The government also suspended repayments on loans given to modernize tea factories and said one month's working capital would also be given to tea factories through commercial banks on the recommendation of the Sri Lanka Tea Board, a state agency that regulates the sector.

However, industry experts say, the Tea industry which sought  sought urgent government assistance in late 2008. is in severe crisis and  the government's intervention has come a bit too late. 

The package also proposed a 5-15 percent cut in salary and perks for government ministers.

Sri Lanka's economic growth will slow this year to near 6 percent, its lowest level since 2004, from last year's 6.8 percent, as the economy feels the reverberations of the global financial crisis, government officials have said.