Fuel Stabilisation Fund likely to come into play if global oil prices continue to rise

As global crude oil prices hit US $ 70 a barrel, Sri Lanka is likely to make use of what is called the ‘Fuel Stabilisation Fund’ established last year when the oil prices slumped in 2020, amid the slowdown in economic activities due to COVID-19.

According to a top government official, who commented on the recent increase in global oil prices, Sri Lanka established a Fuel Stabilisation Fund last year, expecting to confront the rising prices when the global economies recover from the pandemic-induced stresses. 

“What we thought at that time was the prices for oil are not realistic, as they were near zero at some point and won’t sustain longer. So, we thought we must get ready for the rising prices and set up the fund to face the higher prices,” he said asking not to be named.  

However, it remains to be seen whether the fund is capable of smothering out higher increases in oil prices for a long period of time. 

Sri Lanka’s economy largely hinges on how the crude oil prices behave in 2021, as all economic projections have been based on the assumption that the oil prices would hover around US $ 60 a barrel this year.  The Central Bank has even projected a rare surplus in the current account of the balance of payment (BoP) for 2021 and a potential surplus in the BoP based on US $ 60 oil barrel.  

Despite the continuing rise in crude oil prices, Sri Lankan authorities haven’t so far made any moves to increase the prices at the pump although they have hinted of a price increase in LP gas, as the two suppliers had asked for a price hike as no price revision had been made in five years.