As the cash-strapped island’s energy situation intensified, one of Sri Lanka’s largest fuel suppliers raised prices by more than 12% on Saturday. Sri Lanka IOC, a third-largest fuel retailer in the country, announced a 12 percent increase in diesel rates and an 11 percent increase in petrol prices which highly impact local transporter.
The price hikes follow a 7% sharp rise three weeks earlier further to the rising pressure on inflation which is already at an all-time high. Following the outbreak of the Covid-19 epidemic, the island’s tourism business, which was a major source of foreign cash, crumbled.
In March 2020, the government issued an expansive import restriction in order to save foreign cash. Fuel, energy, car parts, and construction material are all in limited supply in the country, forcing supermarkets to restrict essential foods such as rice, sugar, and condensed milk. Last month, shortfalls pushed food inflation to 25% bringing overall inflation to 16.8%.
The state-run Ceylon Petroleum Company (CPC) did not immediately adjust its energy prices, although most of its fuel stations have been out of fuel for several days. The energy minister said last week that fuel shortfalls will be alleviated within a few days but cautioned that a dramatic price increase would be required to keep the CPC afloat. He further explained that.
Last year’s CPC loss was $450. CPC continued to lose money and was already in liabilities to the tune of $3.5 billion.
On Friday Sri Lankan government officials stated that we were unable to import oil due to a lack of funds. We don’t have enough rupees to buy dollars right now. Meanwhile, some thermal power plants have shut down and the electrical utility has increased daily power outages to five and a half hours starting on Friday.
Since late last year, three international rating agencies have downgraded the country, citing concerns that it may be unable to service its $35 billion budget deficit. Sri Lanka has also asked Beijing for more loans to assist pay off its existing Chinese deficit which accounts for around 10% of the country’s total external debt. Officials have loaned significantly from China in the past for infrastructure projects, some of which have turned out to be expensive white elephants.