Above US$ 60 global oil price could scuttle Sri Lanka’s plans

Global oil prices which surpassed US$ 60 a barrel in recent days could put a strain on the lofty expectations of the country’s external sector as projections are largely premised on lower crude oil prices.

Prices at Brent—the global oil benchmark—and the West Texas Intermediate—the US grade for oil—have risen more than 20 percent so far this year. On Friday, the futures at both markets ended at US$ 62.91 a barrel and US$ 59.34 a barrel respectively. 

Sri Lanka expects to record a current account surplus and a likely surplus in the Balance of Payments in 2021 after incorporating little movement in last year’s export and import numbers, provided the import compression remains
through 2021. 

“In our Balance of Payment projections, we are assuming the fuel prices to be at an average of US$ 60.0 a barrel. Anything beyond that will have some impact on the Balance of Payment’s performance, but anything below that will be a bonus,” said Dr. Chandranath Amarasekara, Director of Economic Research at Central Bank speaking at an online seminar conducted by CMA Sri Lanka.

JP Morgan, the United States banking giant last week said there is upside for the oil this year by between another US$ 5 to US$ 10 a barrel but ruled out the possibility of oil at US$ 80 or US$ 90 a barrel as seen in the distant past. 

The Central Bank also doesn’t think that there would be wild swings in oil prices. 

“We hope that the global oil prices wouldn’t move too much above US$ 60.0 a barrel so that we will be able to manage the BoP situation through lower oil prices”, Dr. Amarasekara added. 

Traditionally global oil prices and weather are two key factors that determine whether the Sri Lankan economy is going to do well. This is because dry weather for a prolonged spell or higher crude prices would cause Sri Lanka to foot a higher oil import bill, which weighs on the rupee and the broader external sector. 

Benign oil prices and rains, specially in catchment areas would create more space in the current account as well as in the BoP, as the country could generate more hydro power, that will reduce the need for thermal power. 
Sri Lanka has about US$ 4.3 billion in foreign currency liabilities this year.