Sri Lanka’s state-run Ceylon Petroleum Corporation was hit b 21.8 billion rupee foreign exchange loss as the central bank printed money and weakened a soft-peg with the US dollar and utility had forex liability despite rupee cash reserves, official data show.
A collapse in global oil prices due to the Coronavirus lockdowns in the first half of 2020 had helped the CPC post a 33.9 billion rupee operational profit.
“However, the depreciation of the rupee against the US dollar resulted in an exchange rate variation loss of Rs. 21.8 billion to the CPC during the year given the large foreign currency exposure of the CPC,” the central bank said in its 2020 annual report.
The CPC had posted a pre-tax profit of just 2.4 billion rupees against a loss of 11.8 billion rupees a year earlier.
CPC’s borrowings from the banking sector had risen by 74.1 billion rupees to 381.8 billion rupees in 2020 or 2.5 percent of gross domestic product, with a large portion in foreign exchange due to policy errors.
Sri Lanka government debt, without state enterprises losses was already 101 percent of GDP by end 2020, with a 13.8 percent GDP budget gap financed during the year.
In 2018 as money was printed to target interest rates and an output gap despite severe fiscal corrections involving tax hikes and market pricing of oil the CPC was hit by a 80 billion rupee forex loss.
The utility had been made to borrow dollars, despite having rupee cash collections from market pricing oil as the rupee collapsed from money printing.
The rupees deposited at state-run banks were then used to fund other credits and imports, sabotaging the intended effect of a price formula, analysts have shown.
By the end of 2020 also the CPC had cash deposits at commercial banks of 63.9 billion rupees by end 2020, up from 30 justifybillion rupees at end 2019, the central bank said.
Analysts have called for reform of the central bank to restrain its liquidity injections powers,
2018 was a landmark year as monetary instability and currency collapses came despite a falling deficit, and therefore no fiscal dominance of monetary policy, but pure ‘stop-go’ monetary policy involving targeting an output gap as part of discretionary ‘flexible’ policy.
The central bank has no mandate for growth and only for economic and price stability.