Annual Report 2008 - Ministry of Finance and Planning

1. Macro Economic Perspectives
26
Chart 1.8
of around Rs 15 billion in 2008. The revenue forgone with
regard to duty waivers granted on essential commodities
alone was around Rs. 14 billion in 2007.
High International Commodity Prices
Food prices continued to increase sharply in 2008 in
response to high oil and fertilizer prices, vagaries of weather,
precautionary demand for food stocks in many countries and
policy response in the form of export bans and price controls
by major food exporting countries, to counter domestic
inflation.
High Cost - of-Living
The high international prices of oil and commodities
and consequent domestic fuel price adjustments, supply
shortages in domestic agricultural commodities stemming
from bad weather conditions, demand pressures due to
upward revisions of salaries and pensions to the public
sector and the lagging nature of monetary expansion during
2005-2006 resulted in high cost push impact in the first half
of 2008. This resulted in the Colombo Price Index (2002=100)
to increase rapidly in the first half of the year reaching as
high as 28.2 percent on an year-on-year basis in June 2008.
However, measures taken by the government to bring down
escalating food prices, such as imposing price ceilings on
rice and milk powder and the grant of duty waivers were
effective to a certain extent in the effort to stabilize prices.
Chart 1.9
Table 1.3
Price increases, 2006-2008 June
Commodity 2006 2008 June Percentage
Price Price Increase
Rice 120 258 116
Wheat 311 870 180
Maize 200 358 79
Soya beans 235 583 148
Milk powder 2,194 4,400 101
Source : Food and Agriculture Organization (FAO) of the United
Nations
The Global Food Price Index (2002-2004=100) compiled
by FAO reached a peak of 214 index points recording an
increase of 44 percent on a year- on-year basis.
The surge on food prices compelled the government to
continue duty concessions granted on such imports to
manage rising prices. This resulted in a further revenue loss
However with domestic supply side improvements, especially
the bumper paddy harvest in Yala coupled with dwindling
world commodity and oil prices due to the contraction in
demand in many countries stemming from the recessionary
pressures, paved way for a deceleration in inflation in the
latter part of the year that reached 14.4 percent by the end
of the year. This has been further reduced to 2.9 percent by
end April 2009.
Ministry of Finance and Planning Sri Lanka
Annual Report 2008