Apr 16, 2014 (LBO) – Losses at Sri Lanka’s state-run Ceylon Petroleum Corporation fell to 7.7 billion rupees in 2013 from 89.6 billion rupees a year earlier, but bank debt was still high, official data showed. The Central Bank in its annual report said other state enterprises owed the CPC 75.1 billion rupees and CPC in turn owed banks 223.4 billion rupees at the end of 2013, up from 22.1 billion rupees a year earlier.
In the past CPC had been financing losses of other state-run businesses including Ceylon Electricity Board, SriLankan Airlines and Mihin Lanka, through its borrowings, with the so-called circular debt contributing to balance of payments crises.
Bank financed losses of state enterprises which import energy, ultimately accommodated by central bank credit have been the primary trigger of Sri Lanka’s balance of payments crises, including the latest in 2011/2012 which sent the rupee spiraling down to 130 from 110 to the US dollar.
When imported energy is market priced, an equal amount of spending power is taken away from the domestic market, curbing non-oil imports helping keep the trade deficit in line with actual dollar earnings, the exchange rate strong and inflation low.