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Forex-starved Sri Lanka Runs Out of Cash to Buy Fuel

Sri Lankan government on Monday admitted that it has run out of cash to buy fuel as pumps in most filling stations across the country have run dry, exacerbating the deepening foreign-exchange crisis that has crippled the island nation’s economy. So dire is Sri Lanka’s current economic situation that it does not even have adequate US dollars to pay for two shipments of fuel. Two shipments of fuel have arrived today, but we are unable to pay for it, Sri Lanka’s Energy Minister Udaya Gammanpila said on Monday.

Last week, state-owned refinery Ceylon Petroleum Corporation (CPC) said it was out of money to procure supplies from abroad. The CPC suffered losses to the tune of USD 415 million in 2021 due to the sale of diesel at prices fixed by the government. I had warned about the impending fuel shortages due to the dollar crisis twice in January and once earlier this month, Gammanpila said. Sri Lanka’s worsening foreign-exchange shortage has seriously impacted the energy sector, which largely depends on imports for fuel.

The fuel shortage has led to long queues at understocked pumps across the country. Gammanpila reckoned that the only way out of this mess is by hiking the retail prices of fuel. The minister also urged the government to reduce the customs duty on fuel imports in order to pass the benefits to the public. Earlier this month, Sri Lanka bought 40,000 metric tonnes of diesel and petrol from India’s oil major Indian Oil Corporation to meet the urgent energy requirements in the economic crisis worsened by depleted foreign reserves. India a committed partner and a true friend of Sri Lanka. The High Commissioner (Gopal Baglay) handed over 40,000 MT fuel consignment by Indian Oil Company, a statement issued by the Indian High Commission here had said.

The delivery of the fuel by India came amidst the announcement of Sri Lankan Finance Minister Basil Rajapaksa’s visit to India in a fortnight to formalise India’s economic relief package for the country facing a serious forex crisis. Last month, India announced a USD 900 million loan to Sri Lanka to build up its depleted foreign reserves and for food imports, amid a shortage of almost all essential commodities in the country.

Earlier this month, an agreement to grant Sri Lanka a credit line of USD 500 million for fuel purchases was also sealed which was part of the immediate economic relief package. Sri Lanka’s economy is also seeing a scarcity of food and other essentials, which has pushed inflation to a record 25 per cent last month. Tourism, another key foreign-exchange earner, has also witnessed a lull due to the pandemic.

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