Abstract:
Sri Lanka Railways (SLR) has been experiencing a financial shortfall since the 1940s,
characterised by operational expenditure exceeding total revenue. This study aimed to
identify the critical determinants of the financial shortfall of Sri Lanka Railways (SLR)
using an econometric approach. Employing a quantitative methodology, the study
utilised secondary and manipulated data from 1977 to 2022 to examine the effects of
four key variables: revenue shortfall from fare revisions (FRFR), subsidised season
tickets (FRSS), freight transport volume (FTK), and total wage bill (WB), incorporating
the general price level (CCPI) to account for inflation. The regression analysis, using
the Auto Regressive Distributed Lag Model, identified a short-run relationship between
the financial shortfall (LFS) and lagged variables, including the volume of rail freight
transport (LFTK), total employee wage bill (LWB), and the general price level
(LCCPI). A long-run relationship was found among revenue shortfall from fare
revisions (LFRFR), LWB, LCCPI, and LFS. The findings highlight the significant
impact of aligning railway fares with bus fares and managing employee expenses on
SLR's financial shortfall. Additionally, the revenue shortfall from subsidised season
tickets showed a significant relationship at a 10% significance level, both short-term
and long-term. The study underscores the necessity of revising railway fares in line
with bus fares to enhance revenue and ensure financial sustainability. Optimising
employee-related costs through effective management and reviewing the subsidy
structure for season tickets are also recommended. Furthermore, investment in capacity
and facility development for freight transport is crucial for mitigating long-term
financial shortfalls.
