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Tuesday April 16th, 2024

Sri Lanka economy grinding to a halt as monetary meltdown bites fuel imports

ECONOMYNEXT – Activities at several key economic sectors requiring transport are slowly grinding to a halt as forex shortages from continued money printing is making it difficult to finance oil imports, hitting passenger, goods transport and fisheries.

Sri Lanka’s rupee collapsed from 200 to 360 to the US dollar after two years of money printing and a failed float with a surrender requirement. Liquidity injections and interventions are continuing at the lower level with dollars borrowed from India.

Fuel and gas queues are extending with exasperated customers clashing with police and others who jump the queues.

As passenger and goods transport is disrupted, economic sectors that depend on it including farming and tourism are feeling the pinch. While fishermen are provided some fuel on priority for boats are also depended on trucking and domestic.

Thousands of private buses are off the road without fuel. State-run trains which are supplied with fuel are filled to capacity.

It is not clear when the next petrol ship will come with banks unable to open letters of credit, as people using cars and motorcycles languish in queues, but the last diesel ship from an Indian credit line has now arrived in the country.

Sri Lanka has imported fuel for the past two months with an Indian credit line with without a credible peg or floating exchange rate making to buy dollars for rupees (transfer wealth from the credit system based on the rupee monetary base to the US dollar credit system linked to the Fed).

Related Sri Lanka fuel queues claim two new deaths, taking total to 10

At least two persons died in fuel queues on June 17.

Public Transport

To save fuel the government has closed state offices on Friday and asked them to grow vegetables instead with fertilizer and diesel imports hurting commercial agriculture.

RelatedSri Lanka state offices shut on Fridays for home garden leave

Minister of Transport Bandula Gunawardena told reporters Thursday, that fuel for private buses will be allocated from two fuel stations in Bastian Road in the capital Colombo but, television footage showed that buses in queues with no fuel.

Gemunu Wijeratne, President of Lanka Private Bus Owners Association says buses and drivers are spending most of their time on diesel queues instead of on the road carrying passengers.

Wijeratne said some priority has been promised for public transport and if state-run Ceylon Petroleum Corporation is able to allocate 600,000 liters of diesel per day for the buses, transportation can facilitate 40 million people while running at 50 percent of the capacity.

“With the ministry distributing the incoming fuel according to a priority list the diesel we are getting will be sufficient for the next two weeks,” Wijeratne told reporters on June 16.

“We heard that the CPC does not have any Petrol at the moment making the public transport the main transport for people. If we get 600,000 litres per day, we can facilitate 40 million people who use transport. That is also by operating only 50 percent of the capacity.”

There are emerging complaints of absenteeism and some firms are encouraging work from home.

CROWDED: An overloaded bus in a suburb of Colombo, leaning sideways with passengers clinging to the foot board.

Farming produce that is coming to main cities and economic centres are disrupted from diesel shortages.

Also hit are goods that move to the provinces from central wholesale markets in the capital, which includes imports.

“We are coming from Matara,” a crew member from a dry food truck operating from Colombo to the Southern Province, told EconomyNext.

“We stayed for several days to get the diesel to come on this trip from Matara, after we go today, we are cannot confirmation whether we will return tomorrow or not, because of diesel shortage”.

Sri Lanka’s food prices have risen 57 percent over a year according to official data and rice prices have doubled amid import restrictions.

Interventionist soft-peg

The prices of some fish prices have trebled in some cases after the rupee collapsed against the US dollar following monetary and fiscal ‘stimulus’.

The countries economic woes running back to 1950 can be traced to its intermediate regime central bank built by a US money doctor in the style of Argentina’s BCRA. (How Sri Lanka, Latin America was busted by Fed money doctors creating strongmen, anti-Americanism)

Under ‘flexible’ policy involving aggressive open market operations, anchor conflicts inherent in intermediate regimes (targeting exchange rates to collect or sell forex reserves while printing money to target interest rates) worsened from 2015.

Sri Lanka is undergoing the worst currency crisis in the history of its intermediate regime or soft-pegged central bank after it mis-targeted interest rates under ‘flexible inflation targeting’ with a ‘flexible exchange rate’.

The flexible exchange in Sri Lanka has turned out to be an extreme form of soft-peg with aggressive floating rate style monetary policy.

Since intensified flexible policy began in 2015 the rupee has fallen from 131 to 360 in three consecutive currency crises where forex shortages were covered by foreign borrowings.

Currency crise are peculiar to soft-pegs or flexible exchange rates they do not take place in single anchor regimes involving clean floats or currency boards.

However the country’s economists have stubbornly rejected either regimes sometimes spreading falsehoods to maintain an intermediate regime.

The central bank is negotiating its 17th program with the International Monetary Fund, since soft-pegging began in 1950.

For the duration of an IMF program, the central bank is forced to collect reserves to repay the Fund under a Net International Reserve target, making it impossible to run a clean float and operate a single anchor inflation targeting regime, analysts say.


Sri Lanka facing 2021 with reckless MMT, stimulus mania: Bellwether

Sri Lanka’s monetary meltdown will accelerate unless quick action is taken: Bellwether

Sri Lanka is not Greece, it is a Latin America style soft-peg: Bellwether

In the latest crisis, after defaulting on foreign debt, authorities are looking for 6 billion dollars in new borrowings.


Energy Minister Kanchana Wijesekera says fuel is distributed daily to fishery harbhours though it may not be the full requirement as each multi-day fishing boat requires several thousand litres for a trip.

When boats return, the transport of fish is also threatened.

The Ministry of Fisheries said all efforts were being made to supply kerosene and diesel to fishermen though the volumes were sharply below requirements.

“We are currently supplying fuel according to the stocks we receive, to the fishing fuel station around the country,” Nelson Edirisinghe, media secretary to the ministry of fisheries told EconomyNext.

“However, we doubt whether we can meet the entire demand”

Fishing boats need around 900,000 liters of kerosene a day but the Ceylon Fishery Harbhours Corporation gets only around 300,000, Edirisinghe said.

“So the distribution is being done according to the supply we get. Some harbors do not have a fuel station, so they are being supplied by other fuel stations or in alternative ways” Edirisinghe said.

Fish prices are moving up as the currency collapse by the soft-pegged central bank alters the price structure of the economy.

Minister of Fisheries, Douglas Devananda had discussed with the exporters in the industry to obtain the necessary dollars to purchase fuel needed by the fishing boats in an attempt to dollarize the sector.

Partial dollarization is already taking place in the economy.

This week Energy Minister Wijesekera said jet fuel imports and sales which are about 50 million US dollars will be outsourced to a third party reducing the foreign exchange burden on the CPC. (Colombo/June17/2022 – Update II)

Comments (1)

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  1. Trevor Jayetileke says:

    If I was still the Adviser to the Petroleum Resources Development Ministry, Sri Lanka would be having US$ coming through its ears, but I could not suffer fools.
    Oil Exploration program Phase 2, which started in 2001 has only drilled 4 oil wells. I quit in disgust in March 2014 and no wells have been drilled since? Fools can’t walk the talk??

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Your email address will not be published. Required fields are marked *

  1. Trevor Jayetileke says:

    If I was still the Adviser to the Petroleum Resources Development Ministry, Sri Lanka would be having US$ coming through its ears, but I could not suffer fools.
    Oil Exploration program Phase 2, which started in 2001 has only drilled 4 oil wells. I quit in disgust in March 2014 and no wells have been drilled since? Fools can’t walk the talk??

IMF urged Sri Lanka to preserve “hard earned gains” after economic crisis: State FinMin

ECONOMYNEXT – The International Monetary Fund has urged Sri Lanka to preserve the hard earned gains after an unprecedented economic crisis under the global lender’s programme, State Finance Minister Shehan Semasinghe said.

The Sri Lankan delegation led by Shehan Semasinghe met Kenji Okamura, the Deputy Managjng Director of the IMF on the first day of the IMF and  World Bank Spring meeting.

“Mr. Okamura commended the Sri Lankan authorities on strong programme implementation and excellent reform progress. He emphasised the need to preserve the hard earned gains Sri Lanka has experienced since the beginning of the IMF programme and continue strong ownership,” the State Minister said in his X (Twitter) platform.

He said the Sri Lankan delegation including Central Bank Governor Nandalal Weerasinghe and Secretary to the Treasury Mahinda Siriwardana explained the recent socio-economic developments to Okamura.

He also affirmed the IMF top official on the authorities’ commitment to ensuring continuity and consistency of macroeconomic policies and reforms undertaken under the programme. (Colombo/April 16/2024)

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Sri Lanka State FinMin meets BCIU in US; discusses post-crisis investment prospects 

ECONOMYNEXT – Sri Lanka’s State Finance Minister Shehan Semasinghe met Business Council for International Understanding( BCIU) in Washington on the sideline of the IMF/World Bank Spring Meetings late on Monday and discussed investment prospects in the island nation which is gradually recovering from an unprecedented economic crisis.
“Our discussion centered on the potential that Sri Lanka offers for international investors. Explored various sectors, including education, tourism, renewable energy, agriculture and technology, where strategic investments can drive sustainable economic growth and development,” Semasinghe said in his X (Twitter) platform. 
“We reviewed the current macro-economic landscape of Sri Lanka, including recent reforms that have transformed to results. Glad to concluded the forum by marking constructive dialogue and a shared commitment to support the economic development of Sri Lanka.” 
“We thank participants, stakeholders holders and global partners for the significant interest shown in unlocking the full potential of the Sri Lankan economy and fostering greater international understanding and cooperation.” (Colombo/April 16/2024) 
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India allows Sri Lanka to import 10,000MT of onions

ECONOMYNEXT – India has relaxed an export ban allowing 10,000 metric tonnes of onions to be shipped to Sri Lanka, the Indian High Commission in Colombo said.

“The exemption for Sri Lanka reiterated India’s Neighbourhood First policy, adding to the Sinhala and Tamil New Year festivities here,” the statement said.

Onion prices went up in Sri Lanka after India and Pakistan banned exports.

The Directorate General of Foreign Trade has issued a notice allowing National Co-operative Exports Limited to ship 10,000 MT of onions.

The UAE has also been allowed to import 10,000MT of onions on top of 24,400MT already permitted.

A large Indian and South Asian expat community lives in the UAE. (Colombo/Apr15/2024)

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