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Sri Lanka collapsing fast as government suspends fuel sales, while asking Russia for assistance
By JD Heyes // Jul 05, 2022

The broke, increasingly cash-strapped government of Sri Lanka is continuing to collapse along with the rest of the country in what many economists see as a precursor for the rest of the world.


Last week, the government suspended all fuel sales with the exception of essential services like police, fire and public agencies in a desperate effort to deal with a massive fuel shortage. The decision has bought the government precious little time to send a couple of officials to Russia in order to try and negotiate a new fuel deal.

"From midnight today, no fuel will be sold except for essential services like the health sector, because we want to conserve the little reserves we have," government spokesman Bandula Gunawardana noted in a pre-recorded statement, obtained by AFP News.

The Sri Lankan government announced only essential services would operate and be allowed access to fuel until July 10 because of the shortages.

"Sri Lanka has never faced such a severe economic crisis in its history," Gunewardena added.

Naturally, fuel powers many elements of the Sri Lankan economy including agriculture, so the fuel suspension is only going to worsen an already bad situation.

The move comes less than a week after Prime Minister Ranil Wickremesinghe said the debt-laden economy of the island nation has "completely collapsed."

"We are now facing a far more serious situation beyond the mere shortages of fuel, gas, electricity, and food. Our economy has faced a complete collapse," Wickremesinghe told the parliament on June 22. "It is no easy task to revive a country with a completely collapsed economy, especially one that is dangerously low on foreign reserves."

"The country is also facing record-high inflation and lengthy power blackouts, all of which have contributed to months of protests -- sometimes violent -- calling on President Gotabaya Rajapaksa to step down," AFP reported.

The Sri Lankan government said that it had held talks with the International Monetary Fund and the countries of China, India and Japan in an attempt to establish new lines of credit. Also, negotiations are underway to purchase dramatically discounted Russian crude oil.

Power and Energy Minister Kanchana Wijesekera said the two government officials arrived in Russia last week to continue talks about directly purchasing Russian fuel, according to The Associated Press.

"There is an advantage for us if we could buy oil directly from the Russian government or the Russian firms. There are talks going on," Wijesekera told reporters a week ago.

Late last month, "Sri Lanka turned to Russia for cheap oil to purchase crude roughly $30 below the international spot price. The South Asian country said it received 90,000 tons of Russian crude but will need a lot more," Zero Hedge reported.

But the country's decision to buy Russian crude has raised concerns in the West since Sri Lanka has remained officially neutral following Moscow's invasion of Ukraine. The country's collapse was hastened by a stupendous decline in foreign exchange reserves, which fell more than 70 percent over the past two years, forcing the government to suspend repayments on foreign debt. Some 10 percent of the $51 billion in foreign-owned debt is owed to Beijing.

"The government's mishandling of the country's economy and suspension of fuel sales could exacerbate social unrest," Zero Hedge added.

As fuel shortages began to grow in March, so, too, did the unrest.

Violent protests erupted over skyrocketing prices and shortages and, as citizens waited in long lines for the chance to fill up their cans, some lashed out at each other and fought over access to limited supplies.

Things will get much worse in Sri Lanka before they get better.

Sources include:




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