There is no need to panic over the scarcity of fuel to run power stations as the Government will intervene at the right time to bridge the shortfall, said Central Bank Governor Ajith Nivard Cabraal responding to a query at the Monetary Policy media briefing last week on measures taken to avert a major power crisis in the country.
Fuel purchases will be done when the need arises as the country cannot store fuel for over 80 days due to the limited storage capacity. The government is there to see to such needs, Cabraal said allaying fears of consistent blackouts.
When asked how the dollars needed for fuel imports would be found, he said an agreement had been reached with licensed commercial banks to finance essential import bills to purchase fuel.
The Central Bank will distribute the financing of essential goods import bills to licensed banks in proportion to their foreign exchange inflows to ensure external sector stability. The bank released funds to secure fuel from two vessels at the Colombo Port last week.
Global energy and commodity prices are expected to boom this year triggering high inflation fears across the world. “We don’t expect inflation to remain in the 4-6 percent range that has been forecast as global prices would drop as the days go by,” said Cabraal refuting speculation that supply interruptions would boost inflation to around eight percent this year.
India offered a new US$ 500 million credit line to Sri Lanka to fund fuel purchases, the Indian High Commission in Colombo said last week, as the island struggles to manage its worst financial crisis in years. On an IMF program or debt restructuring plans, Cabraal ruled out both options saying the country does not need more pain by opting for an IMF program while debt restructuring is being done whenever loans are sought.
Of the two International Sovereign Bonds (ISBs) up for settlement this year the first worth US $ 500 million was settled last week and the next amounting to US $ 1.0 billion is due for settlement in July. The Central Bank forecasts economic growth to around 5 percent this year with exports and tourism projected to rebound during the year.
Export income notched USD 1 billion consecutively since June 2021 and tourism has re-bounced with the number of arrivals crossing the 45,000 mark by January 16 this year. The economy contracted by 1.5 percent, year-on-year, during the third quarter of 2021 triggered by the pandemic and mitigative measures.
However, economic activity gathered momentum towards the latter part of 2021 backed by a strong vaccination drive. The economy is expected to have recorded a growth of around 4.0 per cent in 2021, the bank noted.
Expenditure on imports increased significantly, partly reflecting the increased international prices, the demand for intermediate goods, and a more than expected demand for consumer goods. The increase in imports was also underpinned by the availability of low cost credit, which led the trade deficit to widen to pre-pandemic levels in 2021. As of end 2021, the gross official reserves were estimated at US dollars 3.1 billion according to the bank.
The bank extended the payment of an additional Rs. 8 per US dollar for workers’ remittances paid in addition to the incentive of Rs. 2 per US dollar offered under the “Incentive Scheme on Inward Workers’ Remittances” until April 30, 2022, reimburse the transaction cost borne by Sri Lankan migrant workers through the payment of Rs. 1,000 per transaction, when remitting money to rupee accounts via licensed banks and other formal channels from February 1, 2022 and introduce higher interest rates for both foreign currency and rupee denominated deposits of migrant workers.
In consideration of the current and expected macroeconomic developments, the Central Bank decided to raise the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 50 basis points each, to 5.50 percent and 6.50 percent.