After many months of slowdown, Sri Lanka’s fuel bill now appears to have reversed its course as June has seen an increase in the bill in spite of the global crude prices still remaining extremely low, the Central Bank data showed.
According to the official external data, the fuel bill has increased by 5.9 percent in June to US $ 304.2 million from a year ago. But the cumulative bill for the first six months demonstrates a contraction of 20.1 percent to US $ 1.18 billion from a year ago.
In May, the fuel bill dropped by 29.2 percent to US $ 187.1 million from the same month in 2015.
The country’s fuel bill rose “mainly due to the considerable increase recorded in import volumes of all sub categories of fuel,” the Central Bank said in a statement. A lower fuel bill gave much consolation to the import-dependent Lankan economy during the last two years but this advantage was mostly offset by the corresponding rise in consumption-related imports.
A rise in global crude oil prices, though remote in the immediate term, could be a huge blow to the fragile Lankan economy, which has seen its exports falling for the 16th consecutive month in June.
According to Reuters, crude oil futures have risen sharply yesterday amid renewed speculation that major producers including Saudi Arabia and Russia could cooperate to tackle weak prices and rein in oversupply.
The Organisation of the Petroleum Exporting Countries (OPEC) is scheduled to meet at the end of the month to decide on a production freeze but Iran, whose economic sanctions were lifted partly, recently, is unlikely to corporate as they want to produce more to regain the loss market share.
Iran is OPEC’s third largest producer.
Sri Lanka’s myopic policymakers, who came to power early last year promising cars for the middle-income class, gave massive fiscal stimulus by way of a Rs.10,000 salary increase for 1.4 million public servants and cut taxes on some essentials, making the biggest policy mistakes in decades.
Adding fuel to the fire, the Central Bank too cut the interest rates creating cheap bank credit, allowing people to spend way beyond their means and to import 658,241 vehicles in 2015, creating a massive consumption boom.
The economy could not withstand the shock and the currency collapsed from Rs.131 to Rs.147 for a dollar and the country went into a balance of payment crisis, prompting to seek International Monetary Fund support.
Now the consumption boom appears to be coming to an end with higher interest rates becoming the norm.
Now with the monetary policy tightened and austerity measures in place to contain the overheated economy, the economy shows some signs of recovery, but the fiscal account offers major worries.
As a result, the vehicle imports in June dropped by 52 percent to US $ 56.9 million from a year ago.
During the first six months, the total vehicle import bill contracted by 29.7 percent to US $ 419.3 million from the same period last year, the Central Bank data showed.