Sri Lanka to abolish fuel price formula

MERCANTILISM: State-run Ceylon Petroleum Corporation ran up dollar borrowings in 2018 despite a price formula, allowing its cash reserves to be loaned via the banking system to third parties who could buy import goods or buy bonds from fleeing foreign investors.

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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Nick Leeson-style losses at Sri Lanka’s CPC raise big questions

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)





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