ECONOMYNEXT – Sri Lanka’s Consumer Affairs Authority, which triggers periodic shortages for consumers and cripples small and large businesses with its interventions has removed price controls on a range of foods as its results became clearer.
Sri Lanka’s consumer prices have been moving up amid unprecedented money printing since February 2020, which has hit the exchange rate and boosted imports, amplifying the effects of a global commodity bubble fired by the Federal Reserve.
The CAA in a gazette notice issued on November 03 decontrolled both wholesale and retail prices of sugar controlled in September.
Controlled prices of B-onions, canned fish imposed in March 2020 were also lifted. Earlier gazettes relating to sprats, green bean was also removed.
Green bean imports are banned and prices have rocketed.
Sri Lanka in recent years has ratcheted up state interventions (planning) and buckled the price system where the businesses and people could hardly make day to day transactions.
Retail chains had limited sugar to 500 gram per customer by last week and open market prices have moved up.
Sri Lanka imports large volumes of sugar, a part of which is suspected to go for moonshine as alcohol is taxed at high levels and imports of ethanol is banned.
In September sugar wholesale prices were controlled at 116 rupees, retail loose sugar was set at 122 for white and 125 for brown.
Packeted sugar was controlled at 125 rupees and Brown sugar at 128 rupees.
Sri Lana had taxed brown sugar higher than white to give large protectionist profits to two sugar companies that were expropriated in 2011, making brown sugar a luxury good for the less affluent.
Sri Lanka has used taxes for various state interventions including to give profits to special interests and eventually ran up a deficit of around 14 percent of GDP in 2020.
In a bizarre move the central bank advocate the use of taxes to kill ‘undesirable industries’ taking the picking winners interventions to a new extreme.
As money printing created forex shortage and depleted forex reserves, the country has been downgraded on fears of external default.
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While the CAA has to be de-fanged to curb its ability to disrupt the economy, analysts have also called for laws to reduce the ability of the central bank to trigger external crises and violate section 5 (a) of its constitution (maintain economic and price stability). (Colombo/Nov04/2021)