ECONOMYNEXT – Sri Lanka has released foreign exchange for a diesel ship which Central Bank Governor Nivard Cabraal said amid a decision on price increases still being awaited.
“The foreign exchange for the diesel ship has been released,” Cabraal said. “It was done yesterday.
A diesel ship which had arrived in the country over the weekend was awaiting funds to clear it letter of credit to unload fuel.
Sri Lanka now has to pay for fuel upfront before deliveries are made.
There has been panic buying in various locations and public transport was also disrupted as fuel deliveries were curtained by the state-run Ceylon Petroleum Corporation.
Sri Lanka’s economy has recovered and imports are picking up faster than inflows, due to liquidity being injected to maintain low interest rates, leading to forex shortages and higher demand for fuel.
From October the central bank started giving ‘reserves for imports’ which leads to automatic printing money of an equal amount to stop the policy rate from going up (sterilized forex sale), leading more imports and credit.
Over 900 million US dollars of import for reserve sales have been sterilized (offset newly with printed money) since then.
Amid a rise in global prices, the CPC is also running losses, requiring higher interest rates to raise more savings and slow other credit. If not more money will be printed to keep rates down.
Cabraal has also been calling for price increase to match rising import costs to prevent the Ceylon Petroleum Corporation from falling into further debt to commercial banks and preventing further problems down the road.
Sri Lanka has lowest fuel prices in South Asia, he said in a twitter.com message.
Sri Lanka’s #fuel price revision is now long overdue, and #petrol & #diesel pump-prices are in some instances less than half that of some countries in the #region. @CBSL #MinistryofEnergy #CPC #SriLanka #GoSL 🇦🇫🇧🇩🇧🇹🇮🇳🇵🇰🇳🇵 pic.twitter.com/7rAUU5zPMd
— Ajith Nivard Cabraal (@an_cabraal) February 19, 2022
Analysts say though raising fuel prices may seem a politically difficult choice, the eventual consequences of not doing it may be greater.
The tanker has 37,500 metric tonnes of diesel but fuel use in the country has gone up sharply amid a drought and the need to conserve hydro power.
However with sharply higher demand for diesel, the consignment would not last long.
Daily use of diesel which was around 6,000 metric tonnes of diesel has gone up to 9,000 metric tonnes due to extra thermal generation of fuel and the replacement of furnace oil with diesel, Secretary to the Ministry of Power K D Olga told local television.
A 270 MegaWatt coast power plant needs about 1,000MT of diesel a day. The plant earlier ran on low sulphur fuel oil.
Sri Lanka imposed 4.5 hours of power cuts amid fuel shortages on February 23. (Colombo/Feb23/2022)