The World Bank (WB) says that the performance of Sri Lanka’s State-owned firms can be improved by replacing various subsidy schemes with a guaranteed minimum income for poor people in the country, which would also empower them.
Illustrating an example, the WB, Senior Director for Development Economics (DEC), Dr. Shanta Devarajan pointed out that the present power crisis and the losses made by the Ceylon Electricity Board (CEB) are due to electricity subsidies in place.
“When you subsidise the electricity, there’s very little money left to maintain the electricity grid which is why we have power shortages. We have the most expensive electricity utilities in Asia. CEB was losing Rs. 25,000 per day when I last checked, a huge drain on resources,” he said. Dr. Devarajan was speaking at a discussion held last week, hosted by the Nightwatchman Society in Colombo.
He advocated the government to remove these subsidies with cash transfers targeted at the poor.
“There will be huge savings on the fiscal side, and given the macro-economic situation, that’s a huge benefit. This will lead to a more efficient electricity utility as the government will be able to build more efficient power plants,” he elaborated.
Dr.Devarajan also stressed that these subsidies have given politicians more control over the poor rather than empowering them.
“When you have an electricity subsidy, you tell people that they will benefit from it by consuming electricity. That means you have to consume electricity in order to benefit.
“If you convert that to cash transfers, you can spend it on anything from education to electricity. Hence, you are giving more power to the citizens. These subsidies keep people in the hands of politicians,” he said.
He emphasised that the subsidies which originally aimed to help the poor has now become corrosive, becoming the source of the problem of the poor, rather than the solution of the poor.