Transparent frameworks

Thursday, 22 June 2017 00:00 - - {{hitsCtrl.values.hits}}

Sri Lanka’s consumers are likely to feel further strain on their wallets next month as the Transport Board decides to implement a 6.28% price increase from 1 July.

Not only does this call for a relook at how bus fares are calculated, which unlike LPG was not approved by the Supreme Court, and remains opaque but also flexible fuel pricing so that market prices are reflected in the bus fares that are paid by the public.

Policymakers have long called for a transparent system that would allow for price flexibility so that when prices increase in the global market, they are passed directly on to the consumers rather than allowed to bleed a public company dry. Understandably this concern was at its highest during the time when the fuel price was steadily increasing but the point for transparency remains timely.

One can argue that even if the Treasury releases the funds to cover billions in colossal debt incurred by the CPC, people would still end up paying as the costs would come from their tax money. Conversely, if world prices decrease, the relief would be directly passed on to the public.

Historically, governments have sought to subsidise basic needs such as fuel, energy, transport and water and sanitation. Generalised subsidies were more justifiable when Sri Lanka was a low-income country and a higher proportion of the population lived below the poverty line. It was also more affordable when Sri Lanka received large amounts of grants and concessional loans.

However, Sri Lanka is now a lower middle income country, according to economic data and therefore needs to move to being more transparent to its public.

Furthermore, it has been argued that the underperformance of State-Owned Enterprises (SOEs) undermines the macroeconomic stability needed to access the financing required from international capital markets for the country’s development programs. This new environment attaches even higher priority to addressing the underperformance of SOEs. It must be conceded that the losses of SOEs are due to non-cost-reflective pricing policies, operational inefficiencies and poor governance, and the recent move to more cost-reflective administered prices is a welcome development. However, it should be accompanied by a concerted and accelerated campaign to strengthen the ongoing efforts to improve the performance of SOEs. The Committee on Public Enterprises (COPE) has repeatedly pointed out the massive financial and resource mismanagement taking place in SOEs, particularly in the CPC. Substandard fuel imports, sporadic price increases, financial scandals and strikes are among the many ways that the public has experienced the CPC’s inefficiency – many shortcomings that go routinely unpunished.

Perhaps this is the best time to relook at pricing policies and use the current political climate to define a system where cost calculations such as bus fares, which hit the lowest margins of Lankan society, are done with transparency and foresight so that their impact is staggered. Fuel imports are an essential part of the economy and as such a sustainable framework would also foster greater economic growth in sectors such as logistics and tourism.