Sri Lanka slashes fuel prices following World Bank warnings of a global recession

Catastrophe-struck Sri Lanka slashed fuel prices on Monday, the second cut in as many weeks after the World Bank warned that the economic contraction will be at its worse devaluing trend – an exceptional 9.2 percent this year.

Energy Minister Kanchana Wijesekara said that the price of petrol would be reduced by LKR (Sri Lankan rupees) 40 to LKR 370 ($1.02) a liter from Monday night after an analogous 10 percent reduction earlier this month.

The country is undergoing hyperinflation amid the economic crisis, the most awful since its independence in 1948.

In September the inflation stood at 69.8 percent, up from the 64.3 percent listed in August.

Sri Lankan government halted fuel sales to non-essential vehicles

On 28 June 2022, the Sri Lankan government halted fuel sales to non-essential vehicles. Ambulances used to respond to medical emergencies. Other vehicles serving as makeshift ambulances like vans or pickup trucks, cars, motorcycles, motor scooters, bicycles, all-terrain vehicle used for medical services and transporting food could obtain fuel.

Due to the shortage of aviation fuel, the country’s flag carrier Sri Lankan Airlines has to make refuelling stopovers for its long-haul flights along with other international airlines flying to and from Sri Lanka, at airports in the Indian cities of Chennai, Kochi, and Trivandrum. In Sri Lanka the Civil Aviation Authority has also issued an advisory, asking all international airlines to carry additional fuel while flying into Sri Lanka.

The long pause at the pumps has decreased to only a few hours in recent weeks, but fuel is still rigorously dispensed since a ‘‘persistent dearth of dollars’’ is necessary to compensate for essential imports.

In June, this year Troops in Sri Lanka offered tokens to people queueing up for petrol amid a severe fuel shortage in the nation combating its nastiest economic crisis in seven decades, while schools were shut in Colombo and civic personnel were requested to work from home.

The World Bank in its most recent update the previous week said that the economy would continue to shrink next year too. In the forthcoming year, it anticipates a 4.2% contraction.

In addition to the Covid-19 pandemic and the Ukraine war, the country’s worst crisis since independence is also to some extent attributed to the sharp tax cuts announced by former Prime Minister of Sri Lanka Mahinda Rajapaksa. The crisis compelled the government to dodge its $51 billion foreign debt in April.

New President Ranil Wickremesinghe has abolished some of the tax cuts and proposed to brand new revenue measures.

A new 48-month plan under the Extended Fund Facility (EFF)

International Monetary Fund (IMF) team and the Sri Lankan authorities have achieved a staff-level agreement to reform its economic policies with ‘‘a new 48-month plan under the Extended Fund Facility (EFF)’’ with requested access to around SDR (Special Drawing Rights) of 2.2 billion (equivalent US$2.9 billion).

The new EFF composition will strengthen Sri Lanka’s program to reinstate macroeconomic stability and debt sustainability while upholding financial stability, reducing depravity vulnerabilities, and unlocking the country’s growth potential.

Debt aid from Sri Lanka’s creditors and additional financing from multilateral partners will be essential to support debt sustainability and close funding disparities.