A new surcharge tax on fuel imports will be used to cover Rs 700 billion (2 billion US dollar) loan taken over from state-run Ceylon Petroleum Corporation, State Minister for Finance Shehan Semasinghe said.
“There are loans of 7rs 00 billion which are under a Treasury guarantee that will be taken over from CPC,” Shemasinghe said.“The surcharge tax will be used over 10 years to recover the money.”
The CPC was forced to borrow dollars from commercial banks each time the central bank printed money to mistarget interest rates and created foreign exchange shortages, going back several periods of currency crises.
A part of the loans were usually paid back after rates were hiked and monetary stability was restored such as in the year 2017.
However in the next currency crises triggered by liquidity injection tools CPC was forced to borrow from state banks again.
Bank of Ceylon and People’s Bank have loaned the CPC about 2.0 billion US dollar by the time the 2019 – 2022 currency ended.
In addition to the CPC loan the central government also borrowed dollars heavily as forex shortages came from liquidity tool employed to target an overnight rate in the middle of the policy corridor and longer term yields through term reverse repo injections and outright purchases and the country lost the ability to settle dollar loans from inflows.
A top CPC official pointed out that State enterprises such as the Ceylon Electricity Board (CEB) and the loss-making National Carrier SriLankan Airlines owed the fuel supplier millions of dollars in arrears.
He noted that had the monies owed been paid, the CPC would have been able to provide the banks with the necessary rupee equivalent to the dollar price of shipments, thereby securing Letters of Credit (LCs) to import crude oil, which would allow them to refine fuel locally.
The tanker nowunloading fuel is carrying approximately Rs. 28 billion ($ 80 million) worth of crude oil.
Sri Lankan Airlines has $ 300 million in arrears to the CPC. The power sector, the CEB, and Independent Power Producers (IPPs) owe the CPC approximately Rs. 100 billion.
If these state institutions fulfill their financial obligations then the CPC could settle payment of the lineup crude oil shipments to keep the refinery going for months.
The inability to squeeze the current account to repay financial outlflows, when liquidity is injected by a note issue bank, is generally called the ‘transfer problem’ by Keynesian macro-economists.
