REUTERS: Sri Lanka’s government borrowing has risen sharply since January, Central Bank data showed yesterday, due to populist policies adopted by the new government as it seeks to consolidate its grip on power at a parliamentary election.
Having won a presidential election on January 8, President Maithripala Sirisena appointed Ranil Wickramasinghe as the Prime Minister, though he lacks a majority in the 225-seat parliament.
Sirisena has pledged to hold parliamentary elections, which could take place before the end of June - a year ahead of schedule.
To win over voters, the new government’s sharply increased state sector wages and lower duties on key commodities, putting pressure on government finances, pushing yields on Treasury bills up by between 76 to 82 basis points (bps) since January 7.
The sanctions had severely affected the Sri Lankan economy, as the country’s sole refinery at Sapugaskanda was optimized to process Iranian crude.
The refinery had closed down for months, as the government scrambled to purchase crude from Oman, Saudi Arabia and Abu Dhabi.
Ceylon Petroleum Corporation had stated that the processing of non-Iranian crude was reducing the efficiency of the process by up to 20 percent.
Meanwhile, despite the sanctions, China had continued to purchase crude from Iran. However, Iran’s oil revenue, which had accounted for 40 percent of government revenue, fell by over 50 percent with the ban.
Further, the global oil glut created by the US shale-oil boom caused the Middle Eastern producers to reduce their prices to stay competitive. However, Saudi Arabia, the largest producer in the region, is showing intentions of increasing prices, having already increased the price of a barrel marginally last week, while experts are still confused over the long-term outlook.
Iran does not appear to be following suit and reports say that it will maintain its prices until the sanctions are lifted. (CW)