Central Bank to directly fund oil imports for next 3 months

• Says it will improve the current tightened foreign exchange liquidity situation in the market
• To review the current import control measures in December
• Says import ban on vehicles will be relaxed gradually
• Says IMF rescue plan will be the last resort after exploring all other available tools

By Nishel Fernando 
The Central Bank (CB) plans to directly finance the country’s petroleum import bill for the next three months with its reserves, amid concerns of fuel shortages that may occur due to scarcity of dollars in the country. 

“The CB decided to step up to resolve the issue on oil imports. We plan to release necessary foreign exchange to finance the petroleum import bill during next three months,” the CB Governor Ajith Nivard Cabraal told a webinar organized by Colombo-based Think Tank, Advocata Institute last Saturday. 

He highlighted that this measure would improve the current tightened foreign exchange liquidity situation in the market, allowing necessary space for importers to continue with their imports.

The country’s fuel import bill in July stood at US$ 256 million.  In August, the CB provided the market with US$ 225.50 million worth of foreign exchange becoming a net seller in the month reversing the previous trend.

Meanwhile, Cabraal announced that the government plans to review the current import control measures in December, including the import ban on vehicles. He noted that a gradual relaxation of vehicle import ban is likely in order to halt a sudden pressure on foreign exchange reserves. 

Further, he urged importers not to front-load imports and to avoid creating unnecessary pressure on the country’s foreign exchange reserves while assuring that the government would use all available tools to stabiles the rupee.
By end of last week, the rupee had depreciated by 6.9 percentagainst the US dollar with official buying and selling rates being recorded at Rs.198.50 and Rs.203 respectively. However, market rates were much higher.  

Cabraal pointed out that stabilisation of the rupee remains a key priority of the government, which would otherwise adversely impact the country’s external debt stock including US$ 35 billion of the government and US$ 25 billion of the private sector.

Meanwhile, Cabraal stressed that the government would only seek an International Monetary Fund (IMF) programme to restructure the country’s external debt commitments as the last resort while noting that there are several alternative avenues to come up with necessary funds to meet debt repayment obligations in a timely manner.

He cautioned that such an IMF programme could harm the country’s reputation and it would take another 10 years for the country’s to get back on its feet. Hence, he was confident that the government would be able to meet its external debt repayment obligations on time by pursing alternative funding sources.

Cabraal, who assumed duties as the Central Bank Governor a couple of weeks ago, is scheduled to launch his economic stability road map on October 1, containing  short, mid and long-term strategies he would employ to stabilise the economy and restore business confidence.