Sri Lanka to abolish fuel price formula
ECONOMYNEXT – Sri Lanka will end monthly cost based pricing of fuel, newly appointed State Minister of Energy Rohitha Abeygunewardena had said.
Sri Lanka’s News First television quoted the minister as saying that there will be no formula fuel pricing.
President Gotabaya Rajapaksa in his manifesto promised to abolish the fuel price formula.
The fuel price formula helps keep inflation down and the rupee strong balancing external and domestic aggregate demand and preventing the state-run Ceylon Petroleum Corporation from borrowing to cover losses.
Inflation can spike and the rupee comes under pressure if central bank printed money is used through open market operations or other methods to re-finance the borrowings.
However during 2018, the CPC ran 102 billion rupee loss as it borrowed dollars despite having rupee cash deposits from the formula to buy dollars in the forex market.
Analysts have speculated out that Mercantilists have prevented the CPC from buying dollars, nullify any benefit from the formula on the balance of payments and effectively sabotage the price formula.
In Sri Lanka Mercantilism in widely believed and knowledge of classical economic theory is scarce.
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CPC’s dollar borrowing borrowings went up from 335 billion rupees at the beginning of 2019 to 562 billion rupees at the end of 2018. The forex loss was 80 billion rupees. (Colombo/Nov29/2019)