Sri Lanka’s five key state owned business enterprises (SOBEs) posted losses amounting to Rs. 931 billion rupees in the first four months of 2022, official data shows, with a collapse of a soft-peg due to aggressive open market operations of the central bank contributing to most losses.
The Ceylon Petroleum Corporation lost Rs 628billion with Rs 541 billion of the gap coming from a foreign exchange loss as a soft-peg operated by the Central Bankcollapsed steeply after two years of money printing.
The forex loans were also taken to buy oil when the central bank created forex shortages through aggressive open market operations during the current and past currency crises.Currency crises and forex shortages are a problem associated with soft pegs where money and exchange policies conflict.
Oncea clean floating regime or a hard peg is adopted forex shortages disappear as if by magic.
The CPC also assumes the losses of the CeylonElectricity Board indirectly by giving fuel on credit and taking loans to fund its own cash flow shortages due to delays by the Public Utilities Commission ofSri Lanka to grant it price increases.
The prices are hurriedly raised under an IMFprogram. CEB prices were raised through an IMF program in 2012, prior to a float of the currency, but it was later reversed as a China-funded coal plant came online and a price increase was not granted despite several requests.
The Finance Ministry implemented a price formula for CPC under an IMF program in 2018 as a structural benchmark as prices are directly under political controls but the CEB which was under regulation missed structural benchmarks and indicative targets.
“Ceylon Electricity Board (CEB) continued to record losses throughout 2019H1 (-0.5 percent of GDP), due to hydropower shortages,high generation costs, and lack of adjustments in retail prices,” an IMF staff report said in 2019 at the tail end of the last program.
Sri Lanka re-nationalized state enterprises like Sri Lankan Airlines and Litro Gas under then-President Mahinda Rajapaksa and his economic advisors who advocated state expansion and the next administration which critics say had policy fright did not privatize a single entity.
“In 2022, unrest will not only be found in SriLanka. Strikes are spreading and incumbent rulers are losing office in Europeand elsewhere after the Federal Reserve, the European Central Bank, and theBank of England also printed money to ‘create jobs in 2020 and 2021.
