Sri Lanka's foreign reserves are falling, inflation is galloping, balance of payments are in the red, but the island is banking on petroleum price boom to get out of the woods.
The country has no oil of its own and the sharp rise in the petroleum market has sent its energy import bill soaring to 1.2 billion dollars this year from an originally estimated 0.9 billion dollars and eroded foreign reserves.
However, the finance ministry's top official P.B. Jayasundera is hoping that the oil exporting countries with their soaring incomes would now be more willing to bankroll Sri Lanka.
"When Opec (Organisation of Petroleum Exporting Countries) have more money, they are able to give us longer term credit and contribute more by way of development assistance to us," Finance Secretary Jayasundera said.
He said Finance Minister Sarath Amunugama would visit Malaysia soon seeking extended credit for oil imports. A similar request has been made to Iran.
The Opec itself is being tapped for development aid.
"What we need is credit to tide over the immediate period," Jayasundera said. "We expect oil prices to come down from about February."
He said the government was not concerned about the high rate of inflation which he attributed to consumer-led demand and played down worries over the dwindling foreign reserves.
"At these high prices, there is going to be a decline in demand and inflation will ease. I am not concerned about inflation," Jayasundera said. "We expect this kind of (high) rates till about February."
Year-on-year inflation jumped to 11.6 percent at the end of last month compared to 4.8 percent a year ago. Sri Lanka's official foreign exchange reserves dropped to 1.95 billion dollars at the end of July, down 16 percent since December.
The trade deficit widened by 56 percent in the first seven months of this year to 1.28 billion dollars partly because of the higher cost of importing oil.
The Central Bank said last month that economic growth slowed between April and June to 5.2 percent compared with 6.2 percent in the first quarter of 2004.
However, Jayasundera is still upbeat about maintaining the budget deficit at 8.0 percent of GDP this year and even reducing it further to 7.5 percent of GDP next year.
He said more than a million people in the public sector can expect a salary increase in the 2005 budget to be unveiled next month and that the government would offer incentives to the rural agricultural and small industrial sectors.
Jayasundera said he was trying to maintain stability in the exchange rate and keep interest rates low to ensure that the private sector would not lack credit.
This means recourse to more dollar-denominated bonds rather than raising debt locally.
The Sri Lankan rupee has lost over six percent of its value against the dollar so far this year compared to a depreciation of less that 0.06 percent in the corresponding period last year.