Sri Lanka Central Bank Intervenes to Ease Energy Crunch

(Bloomberg) -- Sri Lanka’s central bank is roping in lenders to finance fuel imports as the island nation looks for ways to ease an electricity generation crisis.

The Central Bank of Sri Lanka decided to distribute the financing of essential import bills for fuel purchases among the licensed banks in proportion to their foreign exchange inflows, it said in a statement Thursday.

With a key coal-based power plant under repair and fuel stockpiles running out, the nation is resorting to thermal sources such as diesel for generating electricity. Payments from the monetary authority helped Sri Lanka secure shipments from a vessel carrying 37,500 tons of fuel, Energy Minister Udaya Gammanpila said Wednesday.

The fuel import costs are an added strain on the nation’s already depleted foreign exchange reserves, at a time when Colombo has to pay for essentials such as milk powder, sugar and wheat. Food shortages, caused in part by crop failures, have lifted consumer price inflation to the second-fastest in Asia, prompting the central bank to raise interest rates Thursday to cool demand.

Sri Lanka this week secured a new line of credit of $500 million from India for the purchase of petroleum products. It’s already drawn down a $1.5 billion swap line with China to bolster reserves, a part of which was used to repay foreign-currency bonds on Jan. 18.

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