ECONOMYNEXT – Sri Lanka’s intermediate regime central bank which is in the midst of the worst currency crisis in its history will give a payment plan to settle arrears to oil suppliers, a statement issued after a meeting with President Gotabaya Rajapaksa said.

“The Governor of the Central Bank has agreed to pay the outstanding payments due to the relevant companies for the fuel supply with a plan,” the statement said.

“President Gotabaya Rajapaksa instructed the officials to take immediate action to import fuel using the existing funds available until then.”

President Rajapaksa had met the agents of the main oil suppliers to Sri Lanka on June 27.

“Fuel supply agents pointed out the need for direct engagement of the CB Governor and the Secretary to the Treasury with the mother companies supplying fuel, international banks and financial institutions,” the statement said.

“It was also decided to hold discussions with the relevant mother companies to obtain fuel within a certain grace period if fuel is not made available as per the letter of credit (LC) opening procedure followed so far.

“The President instructed to formulate a formal plan for the next few months to manage and maintain the fuel supply properly.”

“It was decided to provide funds from the Central Bank and the Ceylon Petroleum Corporation to restore the supply of fuel,”

Sri Lanka’s central bank ran out of reserves in the first quarter of 2022 after printing money for two years and is now intervening to maintain non-credible peg at 360 to the US dollar mainly with Asian Clearing Union dues deferred by India.

Forex shortages are problem associated with soft-pegged exchange rates and are absent in clean floats and credible pegs or currency boards.

There is also a surrender requirement to push the rupee down.

Sri Lanka’s rupee has fell to 370 to the US dollar from 200 in an attempt float the currency with a surrender requirement (forced dollar sales to the central bank by banks) while money continues to be printed to keep rates down. (Colombo/June27/2022)