Sri Lanka energy SOE losses projected at 1.0-pct of GDP

July 28, 2012 (LBO) – Sri Lanka’s state energy enterprises will make losses of about one percent of gross domestic product, a lower than 1.75 percent GDP loss made in 2011, an International Monetary Fund report has said. Though the IMF program had a requirement to make energy enterprises break-even it was not a performance criterion of the program.

An IMF program typically has three targets; net domestic borrowing, reserve money which is basically domestic currency notes or obligations created by the Central Bank which are exchangeable for foreign currency, and foreign reserves.

The energy price manipulation was captured in the program when the Central Bank lost foreign reserves by trying to manipulate interest rates, as credit demand surged.

The rupee fell from 110 to 134 to the US dollar pressured by sterilized foreign exchange sales.

LBO’s economics columnist fuss-budget says an IMF program that has a single performance criterion – an end of period stock of net domestic assets of the Central Bank – could keep the exchange rate and inflation stable.

Such a target will force an automatic interest rate adjustment when credit demand surges due to state or private sector activity.

A ceilin