Economic crisis deepens in Sri Lanka; Colombo seeks help from India and UAE to buy fuel

Sri Lanka is in talks with India for a $500 million credit line to buy fuel and delay payments, said a senior Sri Lankan official as its already struggling economy worsened by the weeks-long lockdown and restrictions due to the Covid-19

Sep 24, 2021
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Economic crisis deepens in Sri Lanka

Sri Lanka is in talks with India for a $500 million credit line to buy fuel and delay payments, said a senior Sri Lankan official as its already struggling economy worsened by the weeks-long lockdown and restrictions due to the Covid-19. The island is also holding discussions with the UAE for concessionary arrangements for fuel.

P B Jayasundera, who is secretary to Sri Lankan President Gotabaya Rajapaksa, confirmed they are holding talks with New Delhi. Colombo has been facing a balance of payment crisis for months now and has introduced severe import curbs to control it. 

Sri Lanka Foreign Minister G L Pieris met with Emarati Industry and Advanced Technology Minister Sultan Al Jaber“[Minister Pieris] in New York city and discussed “the country’s requirement of oil, and requested concessionary arrangements from the UAE,” the foreign ministry said in a statement.

“Minister Al Jaber, responding positively, said that the UAE would be happy to assist, and proposed the establishment of a strategic framework to take the process forward,” the statement added.

The outstanding dues on the Ceylon Petroleum Corporation, a state-owned company, is around $3.3 billion--almost equal to Sri Lanka’s current foreign exchange reserves over loans taken at a time when its currency is already under pressure. 

Jayasundera said they have been looking at various proposals to borrow for CPC. “We are also talking with the government of India for an oil credit facility,” Jayasundera said in an interview to EconomyNext portal.

“So that petroleum burden would be reduced a little bit. We are looking for around $500 million,” he added. 

Colombo also relied on printing excess money to boost demand. However, it also worsened the forex crisis and fueled inflation. The food and essential shortage further burdened the government’s import bills.   

In 2019, the CPC borrowed around $900 million taking the total loans under Treasury guarantees to $1.8 billion despite market pricing oil, as money was printed to target a call money rate and close an ‘output gap’.

The increase in global oil prices also forced the island nation to spend more on oil imports this year. The oil bill in the first seven months of this year alone stood around $2 billion, a jump of around 41 percent in comparison to the same period last year.  

(SAM)