Sri Lanka exchange rate pressured; fuel taxes can reduce fiscal ills: economist

Oct 26, 2008 (LBO) – Despite falling oil prices, Sri Lanka is now in the midst of a balance of payments problem brought about by central bank interventions in forex markets, whose full effects are yet to be seen. Q: Now with the credit crunch we have seen a lot of commodity prices coming down on one side and on the other side exports could also come down, even tea prices. How turn out?

A: If you look on a very simplistic basis the fall in the commodities exports as apposed to the fall in commodity imports – our commodity imports are far greater than commodity exports and actually oil has fallen more that tea has fallen. So if you look at the net basis if you are looking into 2009 we are at a major advantage. If you look in terms of net imports perspectives compared to exports it improves the balance of payment pressure.

The second factor is on the fiscal side. Now for instance if you keep the current petrol prices, that is huge benefit on the fiscal side. Because government revenues which was very hard to increase is going to substantially improve. Which will be good on the fiscal side, reducing the fiscal deficit. S although it is hard for the consumer it is good for the government on t