ECONOMYNEXT – Activities in several key economic sectors requiring transport are slowly coming to a halt as currency shortages from continued money printing make it difficult to finance oil imports, affecting the transport of passengers, goods and the sin.
The Sri Lankan rupee tumbled 200 to 360 against the US dollar after two years of money printing and a failed float with a buyback obligation. Liquidity injections and interventions continue at lows with dollars borrowed from India.
Fuel and gas queues get longer with exasperated customers clashing with police and others jumping the queues.
As passenger and freight transport is disrupted, the economic sectors that depend on it, including agriculture and tourism, are feeling the effects. While fishermen receive fuel as a priority, boats also depend on trucking and domestic.
Thousands of private buses are off the road without fuel. State-run trains that are fueled are filled to capacity.
It’s unclear when the next tanker ship will come with banks unable to open letters of credit as people using cars and motorbikes languish in queues, but the latest diesel ship in a line of credit Indian has now arrived in the country.
Sri Lanka has been importing fuel for the past two months with an Indian line of credit without a credible anchor or floating exchange rate to buy dollars for rupees (wealth transfer credit system based on the monetary base of the rupee to the Fed-linked US dollar credit system).
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At least two people died in fuel queues on June 17.
To save fuel, the government closed state offices on Friday and told them to grow vegetables instead, as fertilizer and diesel imports hurt commercial farming.
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Transport Minister Bandula Gunawardena told reporters on Thursday that fuel for private buses will be allocated from two petrol stations on Bastian Road in the capital Colombo, but television footage showed buses queuing without fuel.
Gemunu Wijeratne, chairman of the Lanka Private Bus Owners Association, says buses and drivers spend most of their time in diesel queues rather than on the road transporting passengers.
Wijeratne said some priority has been promised for public transport and if the state-run Ceylon Petroleum Corporation is able to allocate 600,000 liters of diesel per day to buses, transport can facilitate 40 million people while operating at 50% capacity.
“With the ministry distributing incoming fuel according to a priority list, the diesel we get will be enough for the next two weeks,” Wijeratne told reporters on June 16.
“We have heard that the CPC does not have petrol at the moment, which makes public transport the main mode of transport for people. If we get 600,000 liters per day, we can facilitate 40 million people who use transport. It is also by exploiting only 50% of the capacity.
There are increasing complaints of absenteeism and some companies are encouraging working from home.
Agricultural products arriving in major cities and economic centers are disrupted by diesel shortages.
Goods that are transported to the provinces from the capital’s central wholesale markets are also affected, which includes imports.
“We are from Matara,” a crew member of a dry food truck operating from Colombo to the Southern Province told EconomyNext.
“We stayed for several days to get diesel for this trip from Matara, after leaving today we cannot confirm whether we will return tomorrow or not, due to the shortage of diesel.”
Food prices in Sri Lanka are up 57% year on year according to official data and rice prices have doubled due to import restrictions.
Prices of some fish tripled in some cases after the rupiah collapsed against the US dollar following a monetary and fiscal ‘stimulus’.
The country’s economic woes that date back to 1950 can be traced to its mid-tier central bank built by an American money doctor in the style of Argentina’s BCRA. (How Sri Lanka and Latin America Was Destroyed by Fed Money Doctors Creating Strongmen, Anti-Americanism)
Under a “flexible” policy involving aggressive open market operations, the peg conflicts inherent in intermediary regimes (targeting exchange rates to collect or sell foreign exchange reserves while printing money to target interest rates) worsened from 2015.
Sri Lanka is going through the worst currency crisis in the history of its intermediate regime or loosely pegged central bank after it mistargeted interest rates under “flexible inflation targeting” with a flexible currency”.
The flexible exchange in Sri Lanka turned out to be an extreme form of soft peg with an aggressive floating rate type monetary policy.
Since the start of the intensified flexible policy in 2015, the rupee has risen from 131 to 360 in three consecutive currency crises where currency shortages were covered by foreign borrowing.
Currency crises are unique to soft pegs or flexible exchange rates, they do not arise in single-peg regimes involving own floats or currency boards.
Yet the country’s economists have stubbornly rejected either regime, sometimes spreading lies to maintain an intermediate regime.
The central bank is negotiating its 17th program with the International Monetary Fund, since the start of soft-pegging in 1950.
During the life of an IMF program, the central bank is obligated to collect reserves to repay the Fund under a net international reserve target, making it impossible to manage a clean float and enforce of a single-anchor inflation-targeting regime, analysts say.
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In the last crisis, after defaulting on foreign debt, the authorities are looking for $6 billion in new borrowing.
Energy Minister Kanchana Wijesekera said fuel is being distributed daily to fishing ports, although this may not be the full requirement as each multi-day fishing boat requires several thousand liters for a trip.
When the boats return, the transport of fish is also threatened.
The Department of Fisheries said every effort was being made to supply kerosene and diesel to fishermen, although volumes were well below requirements.
“We are currently supplying fuel based on the stocks we receive, to the fishing fuel station across the country,” Nelson Edirisinghe, media secretary at the Ministry of Fisheries told EconomyNext.
“However, we doubt that we can meet all of the demand”
Fishing boats need about 900,000 liters of kerosene a day, but the Ceylon Fishery Harbors Corporation only gets about 300,000, Edirisinghe said.
“So the distribution is based on the supply we get. Some ports do not have a gas station, so they are supplied by other gas stations or by other means,” Edirisinghe said.
Fish prices are rising as the loosely pegged central bank’s currency collapse changes the price structure of the economy.
The Minister of Fisheries, Douglas Devananda had discussed with the exporters of the industry to obtain the dollars necessary to purchase the fuel necessary for the fishing boats in an attempt to dollarize the sector.
Partial dollarization is already underway in the economy.
This week, Energy Minister Wijesekera said imports and sales of jet fuel, which amount to about US$50 million, will be outsourced to a third party, reducing the foreign exchange charge. on the CPC. (Colombo/June 17/2022 – Update II)