Financial Times

Costly subsidies that deter development

The annual cost of public health, the construction of 1,300 new schools and the cost of the southern highway – that’s what could have been achieved if Sri Lanka abandons costly subsidies on fuel and fertilizer, according to the Central Bank.

In its latest 2005 report, the Bank said annual subsidies for fuel and fertiliser amounted to Rs.26 billion and Rs.6.8 billion, respectively.

These subsidies amounted to 1.4 percent of GDP in 2005 which could be compared with the total public spending on health in 2005 (Rs.44.8 billion) and the cost of the Norochcholai power project (Rs.47.9 billion).

“It is almost equal to the total estimated cost of the southern highway (Rs.33.9 billion).

This is several times higher than the allocation (Rs.0.35 billion) made for the new Uva Wellassa University in 2005. The annual cost of subsidies could be utilised to construct about 1,300 schools or about 160 base hospitals per year,” the report said.

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