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Saturday June 3rd, 2023

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)

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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??

Sri Lanka to ramp up weekend fuel deliveries after petrol price cut

More deaths reported at Sri Lanka fuel queues

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation will be operating on the weekend to complete all fuel deliveries to end vehicle queues forming outside fuel stations after the price revision earlier in the week, Energy Minister Kanchana Wijesekera said.

“Instructions have been given to CPC and Ceylon Petroleum Storage Terminals to continue fuel deliveries on Saturday and Sunday this week to supply sufficient stocks to all fuel stations,” Minister Wijesekera said in a TWITTER.COM MESSAGE

“To reduce expenses on overtime, CPC and CPSTL have not been operating on Sundays and public holidays in the last 4 months,” Wijesekera said.

“Non-placement of orders by fuel stations from last Saturday, anticipating a price reduction, not maintaining minimum stocks, immediate increase in demand by consumers after the price revision, and quota increase have created shortages in the fuel stations.”

The Minister in April 2023 said all fuel stations would be required to maintain a minimum of 50 percent of stock tank capacity.

“I have asked CPC to review and suspend the license of fuel stations that had not maintained minimum stocks.” (Colombo/ June 02/ 2023)

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Sri Lanka bonds yield up at close, rupee at 291.75/292.50 against the US dollar

ECONOMYNEXT – Sri Lanka’s bonds closed steady on Friday, dealers said, following the central bank’s decision to cut its main policy rate by 250 basis points.

The Spot US dollar closed at 291.75/292.50 rupees, dealers said.

The rupee opened at 290.25/75 to the US dollar Thursday and closed at 292.50/295.50 to the US dollar.

A bond maturing on 15.09.2027 closed at 24.70/90 percent up from 24.50/90 percent a day earlier, dealers said.

A bond maturing on 15.05.2026 closed at 25.75/26.25 percent up from 25.00/26.00 percent a day earlier.

A bond maturing on 01.05.2025 closed at 27.00/30 percent, up from 26.30/27.00 per cent at last close.

A bond maturing on 01.07.2032 closed at 20.25/21.00 percent, up from 20.00/40 per cent at last close.
(Colombo/ June 02/2023)

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Sri Lanka’s shares edge up on positive macroeconomic sentiments

ECONOMYNEXT – Sri Lanka’s shares closed higher in trade on Friday, over positive macro-sentiments encouraging investors to redeem their interest towards buying, an analyst said.

The main All Share Price Index was up 0.72 percent or 62.19 points to 8,753.80,  while the most liquid index S&P SL20 was up 0.68 percent or 16.87 points to 2,487.29.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

Prior to the Monetary Policy investors were quite optimistic that inflation is to lower and interest rates will decrease and since exp, an analyst said.

Sri Lanka Central Bank is waiting for the government proposal on the domestic debt restructuring (DDR), the central bank governor Nandalal Weerasinghe said amid uncertainty over DDR and speculations over instability in the banking sector.

“On debt restructuring, the borrower is the ministry of finance’s treasury. Certainly we will announce what the strategy will be. We are waiting for a government proposal,” Weerasinghe said.

Sri Lanka’s investors are waiting on assurances to be made on debt restructuring and optimization, Central Bank Governor Nandalal Weerasinghe said, “It is up to the government to clear the uncertainty, because from our side we have done that part.”

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

The speculation of DDR has hit the market and the risk premium has kept the market lending rates well above the central bank’s policy rates. The government has yet to present its plans on DDR.

Weerasinghe said the central bank has done its best to reduce the risk premium through bringing down the market lending rates while keeping the policy rates unchanged.

Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

However Officials from IMF have said Sri Lanka has to focus on expanding taxes.

“We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability,” Deputy Managing Director Kenji Okamura said in a statement.

The finance ministry this week issued rules requiring everyone above 18 year of age to register to pay income tax.

“I was encouraged by the authorities’ commitment to negotiate a debt strategy in a timely and transparent manner.

The market generated a revenue of 738 million rupees, while the daily average was 1 billion rupees.

Top gainers in trade were Vallibel One, LOLC Finance and Browns Investment. (Colombo/June02/2023)

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