Growing demand for urban TRANSPORT STRATEGY 0 1054

An efficient, modern and clean public transport connectivity is essential for a country, before we think of isolated link of Monorails link without public transport network system to fill the gap. Public investment in such assets is now becoming essential given the use of private transport and the rising cost of fuel imports. It is estimated that the split of the public passenger transport (bus and railways) in Sri Lanka has reduced from 65 percent in 2010 to 44 percent in 2018 leading to urban traffic congestion (Figure-1).

The estimated cost of this shift has increased from LKR 400 million in 2011 to LKR 2.2 billion in 2018. The worst impact of ad-hoc pricing policy on private motor vehicles (Motorcars, three wheelers and motorcycles) and fuel in 2015 illustrated by the operational vehicle fleet increased from 2.52 million in 2010 to 5.70 million in 2018. It should be noted that operational fleet of 3.90 million in 2014 increased and to 4.53 million in 2015 which is a 16 percent annual increase which was also the highest annual incise in the Sri Lankan history as a result of low fuel pricing and reduction in import tariffs on vehicles in 2015.

Factors Displacing Public Transport

Many considerations have influenced the displacement of public transport and among them,

01. The fuel pricing reduction that was introduced in 2015 witnessed the increase in petrol consumption of the transport sector from 885 million litres in 2014 to 1,329 million litres in 2015 accounting for a 50 percent annual increase, which encouraged increased use of private vehicles (Figure-2). The increase of private vehicles on the roads reduced the average vehicle speed in Colombo Metropolitan Area from 21 km per hour in 2010 to 8.2 km per hour in 2018 (main road corridors of CMA).

02. The vehicle taxation policy too increased the importation of hybrids from 115, 215 in 2011 to 172,434 in 2018 which amounts to 33 percent of the operational motor car fleet. The operated vehicle kms also increased by four fold from 2011 to 2018.

03. What is noticeable is that public transportation as provided by the railway and passenger bus services, has not improved in their service quality in keeping with per capita GDP growth during the same period.

All these are inherent weaknesses in Sri Lanka’s economic management thought process which gives rise to several short-term problems.

01. High cost of fuel and vehicle imports costing USD 1,625 million in 2018 of the reported in trade deficit of USD 10, 800 million in 2018.

02. The rising import cost and falling reserves were the two major challenges in managing foreign exchange.

03. Heavy urban traffic costing travel time and fuel waste thereby impacting labour productivity.

In the backdrop of a looming BOP crisis, despite the low fuel prices since 2014, the government in 2018 introduced import restrictions by way of imposing 200 percent cash deposit margins and high tariff based on vehicle weight.

Therefore what is needed in this hour, is an innovative package of solutions to be executed at national level for transport management through effective fiscal policies for private motorist, and fuel prices based on the reflective economic cost for the private mode of transport. Those who use road network space during peak hours should pay the road user cost, determined by the cost of the given trip. Further, the public transport system such as Bus Rapid Transport Network (BRT), and the feeder mode of public transport should be linked to high demand BRT corridors and railway networks with facilities for parking and using public transport to reach their destinations. In addition, an integrated traffic management system for urban road networks with less human intervention should be formulated.

The BRT, and high density rail solution should be considered only if there 35,000 passenger movements in a given corridor. If the passenger movements are between 15,000 to 35,000 then the BRT and corridors with less than 10,000 passenger movement should be provide appropriate modes of public transport systems. It is utmost urgent to have a transport hub to facilitate with network improvement to provide parking facilities for private motorists to switch to public transport system. The National Road network should also be improved based of the demand of the public transport network.

By: Dr. D. S. Jayaweera

Transport Economist/ Financial Analyst






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Banking In a Spot of Bother 0 724

By : Kenneth De Zilwa

The Sri Lankan Banking system credit growth is strongly correlated with the economic activity of the country. The Correlation Coefficient between GDP growth rates and Banking Sector Annual Average Loan Growth is 0.76.

The Banking sector profits have witnessed a 25pct growth from 2016 to 2017. The growth comes on the back of highly volatilize exchange rates and interest environment in the economy. NII of the banking sector to showed a growth 12pct for the corresponding period, thus remaining flat from 2015.  Other income have accounted for 73pct while NII contributes circa 27pct of the total income of the Banking sector.

Banking In a Spot of Bothe

The Sri Lankan economy has recorded an average growth of 4.5 pct over the past 66 years. While only recording above average growth rates of 8pct post war in 2010, 2011 and 7pct growth rates in 2013 and 2014.  In 2015, 2016 and 2017 the economic activity declined and continued to grow marginally above the trend line growing   by 4.8pct in 2015, 4.4pct in 2016 and 4.0pct in 2017. Credit growth has decelerated from 32pt in 2016 to 18.1pct in 2017. Recording a  57pct year on year decline.

Banking sector credit growth has predominantly focused on the Industrial sector which accounts for circa 42pct of which housing and construction accounted for 75pct of the total, while services accounted for 30pct, within which tourism based credit creation was circa 29.3pct while consumption based credit lending stood at  21pct and agriculture 9pct.

Banking In a Spot of Bothe

Therefore Econsult anticipates that the slowing of credit growth would translate to an overall slowing of the real sector and lower GDP growth for 2018 to 3.0pct and 2019 to 3.5pct. On the back of tighter credit controls, declining agricultural supplies,  incremental VAT and taxation ushered in by the New Inland Revenue Act 2017, and the currency depreciations

The rating agency too have indicated that Banks would have to consider supplementing risk capital by cutting down dividend payout and consider further capital raising based on Basel III rules since CAR have come under pressure due to rising NPL’s to equity & reserves. This could mean that Banks would be forced to tighten credit while adopting more secure means of lending. Such outcomes could pose more issues to the already choked real economy. The recent deceleration of the economy is bound to hit the banking sector in Q4 2018 and Q1 2019.

Source : CBSL Annual Report & Thmosonreuters

The Price We Pay For Not Understanding The ‘Price’ 0 1091

In the book titled ‘Marx’s ‘Theory of price and its Modern Rivals’, Sri Lankan born and educated Prof. Howard Nicholas exposes the flaws in the many theoretical debates in money, price and inflation. This he does by revealing the inconsistencies and contradictions in economic theories submitted to explain price. This is nothing new in Sri Lanka and many developed countries attributable to the fact the certain economists, due to a false understanding, are misled on what price is all about. Therefore, let us examine this false interpretation and try to understand the real parts that from PRICE which we play in commerce.

According to Prof. Nicholas, Orthodox economists starting with David Ricardo have not quite understood the concept of ‘price’ and how it is computed. He argues that the explanation of price by Marx, who had a deep understanding of the capitalist system, is more logical and clear. To understand Price we have to first understand how commodities bearing a price tag are produced and marketed. Prof. Nicholas who refers to this process as the- Production Cycle’ explains that present day economists go astray since at the outset they focus only on the process of exchange, assuming individuals are naturally endowed with commodities. This mistake causes them to ignore cost of production and focus on individuals and their choices when explaining prices.

A second important point made by Prof. Nicholas in his book is that when explaining price, from the outset we need to bring money into the picture. This is, to explain prices as money- prices. When products calculate the values of their commodities, they do so in terms of money thereby setting money prices. Buyers of goods in markets make payment in accordance with these money- prices. According to economic orthodoxy, the prices that matters are relative prices. That is, the price of one product in terms of another and not in terms of money. In fact, although this may not be so apparent when reading standard economics text books, money has no role to play in the basic explanation of prices. It only makes its appearance when macro-economic phenomena, in particular the aggregate level of prices are considered.

The third major argument prof. Nicholas advances is that the basis for explanation of cost of production of the commodity as its money cost of production, needs to be seen as the labour time spent in production. This is what Marx referred to as the value of commodity. Labour time spent in production amounts to money costs, when money represents labour time by itself. This happens when money is used by producers, to depict the value of the product. The importance of explaining prices is perhaps best been by producers, to depict the value of the product. The importance of explaining prices is perhaps best seen by the present downward pressure on global prices, resulting from the massive technological change across the globe. Despite unprecedented levels of printing of currency by Central Bank of major countries, world inflation rate has continued to fall down. This underlines the importance of labour productivity in explaining price, and the incorrect explanation of money and price by economists. It may also be the clearest practical support for Marx’s price theory as seen by Prf. Nicholas

By : Dr Kenneth De Zilwa