Sri Lanka faces an energy disaster
As Sri Lanka faces its worst economic crisis in seven decades, an energy catastrophe looms for the country. Without the rapid formation of a new government capable of introducing an interim budget and financial reforms, as well as financial support from neighboring countries, the country could soon run out of fuel and other essentials. There are well-founded fears that petrol stocks will soon run out, with Power and Energy Minister Kanchana Wijesekera announcing earlier this month that there was enough petrol left in Sri Lanka for less day, based on normal consumption levels, with only 12,774 tons of diesel and 4,061 tons of gasoline remaining in its reserves. The next gasoline delivery was expected more than two weeks later. The country has already halted gasoline and diesel sales for non-essential vehicles, but it could dry up even for those vehicles.
Even though fuel shipments arrive early, Sri Lanka does not have enough money to cover the cost as its economy is in a dire state. Although it cleared initial fuel supply hurdles in recent weeks, the country believes it will have to restrict fuel imports for next year due to a shortage of foreign exchange. Sri Lanka has faced shortages of basic necessities including fuel, food and medicine, with no likely easing any time soon. This was mainly blamed on economic mismanagement and the Covid-19 pandemic.
Former electricity and energy minister Gotabaya Rajapaksa resigned earlier in July and fled the country following widespread protests over economic mismanagement. Schools have been mostly closed over the past month due to lack of fuel, although they reopened this week. Meanwhile, public sector employees are working from home. Two shipments of fuel by the second largest fuel retailer, Lanka IOC, totaling 60,000 tonnes, are expected to ease some of the shortages in August. The company’s general manager, Manoj Gupta said“We are working collectively with the government to reduce the pain and our priority is to supply the industries.”
Although some shipments are planned, many suppliers are reluctant to trade with Sri Lanka, refusing to accept letters of credit from its banks. The country has about $700 million in arrears, forcing suppliers to seek advance payments for shipments. It has already been bailed out by India, which granted Sri Lanka a $500 million line of credit, but this expired in June. Now he fears his planned shipments won’t arrive, and the country could run out of fuel at any time.
Last week, the government introduced a 12-22% increase fuel prices, which should drive up already high inflation rates. In addition, he introduced a “National Fuel Pass” as a means of ration fuelwhich offers citizens a weekly quota based on the number plates of registered vehicles.
Last week, President Gotabaya Rajapaksa finally resigned and fled the country after months of protests. The UN now hopes that a peaceful transition of power will help restore confidence in the state. Business confidence in Sri Lanka is currently extremely low, according to Ceylon Chambers of Commerce Chairman Vish Govindasamy. He declared, “Business confidence is probably at its lowest in my time in business. This is probably the most difficult period we have known. But we are resilient. He added: “Companies are making sure we survive this difficult time… [but] reforms are absolutely necessary.
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To gain confidence in the future of the Sri Lankan economy, a new government will have to introduce new tax reforms. This will largely depend on the successful and rapid transition of power for the introduction of an interim national budget. Asanga Abeyagoonasekera of the global think tank Millennium Project stressed that Sri Lanka must “dismantle the autocratic footprint left by Gotabaya and democratize, bring back checks and balances and independent institutions”.
In addition to the establishment of a new government and financial reforms, Sri Lanka will have to seek help from neighboring countries if it hopes to improve its financial situation. To improve his debt restructuring problem, he will have to seek help from China to provide debt relief and help speed up the process. Umesh Moramudali, Lecturer at the University of Colombo Explain “You can’t get out of this crisis without China,” adding that “China has to agree to restructure its debt, which is not their usual path.”
China has already invested billions in Sri Lanka for its Belt and Road Initiative, which means it is in its interest to help the country rebuild its economy. Wang Wenbin, spokesperson for the Chinese Foreign Ministry, said that “soon after the Sri Lankan government announced the suspension of international debt payments, Chinese financial institutions contacted the Sri Lankan side and expressed their willingness to find an appropriate way to manage overdue debts related to China and help Sri Lanka overcome the current difficulties.
Support from China and India, along with the rapid formation of a government with further financial reforms, could help Sri Lanka secure a much-needed bailout from the IMF to begin rebuilding its economy. Deborah Brautigam, professor at Johns Hopkins University, Explain, “The IMF cannot… interact with the government when things are in continuing crisis mode. So until the government stabilizes, until it has a finance minister, there is no one to talk to at the IMF. She added, “The IMF will not lend in a situation where it feels its money will not be repaid.”
Sri Lanka is facing economic turmoil and severe fuel shortages, causing many people to worry about the country’s economic and energy security. However, there is still hope that the formation of a new government, with the support of neighboring countries and the international community, has the potential to pull Sri Lanka out of this mess before it is too late. .
By Felicity Bradstock for Oilprice.com
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