FINANCIAL CHRONICLE – The Sri Lankan government has yet to reach a conclusion regarding the continuation of its current fuel subsidies, as stated by Cabinet Spokesman Nalinfa Jayatissa. The three-month subsidy period, which was established to address rising oil prices due to recent conflicts in the Middle East, is anticipated to be fully consumed by the end of this month.
In response to escalating oil prices that surged following the outbreak of hostilities on February 28, President Anura Kumara Dissanayake’s administration allocated Rs.100 billion for fuel subsidies. For the current month alone, Rs.57 billion has been earmarked for this purpose. The state-owned fuel distributor has reported losses of 60 rupees per liter for petrol and 129 rupees per liter for diesel.
The government has been utilizing this Rs.100 billion to subsidize fuel at rates of Rs.20 per liter for petrol and Rs.100 per liter for diesel. Minister Jayatissa mentioned that the government is currently evaluating pricing in light of a proposed ceasefire agreement between Iran and the United States.
“No decisions have been made beyond June,” he remarked. “If the agreement is successful, we may contemplate a price reduction.” He added that the situation remains uncertain, as nearly all fuel shipments for the month have already arrived, with one crude shipment still pending. “We are receiving the fuel we previously ordered, so we will have to wait and see,” he noted.
The Minister emphasized that any concessions would be granted when feasible, contingent upon a decline in global oil and crude prices. He explained that earlier shipments were affected by a high premium. “As we evaluate prices, we will take into account the declining trends. The government aims to provide maximum relief to the populace,” he stated.
The island nation has also implemented fuel rationing to curtail consumption amidst the crisis. The conflict between the U.S. and Israel with Iran has severely impacted the Strait of Hormuz, leading to an acute domestic energy crisis due to Sri Lanka’s total reliance on imported fuels.
Within a few weeks, retail fuel prices surged by approximately 48%, pushing petrol prices to Rs.434 per liter and diesel to Rs.407 per liter. To shield the most vulnerable sections of society from this economic upheaval, President Dissanayake’s administration launched a substantial energy relief package amounting to Rs.100 billion.
This emergency relief initiative includes on-budget fuel subsidies for fishermen, subsidized electricity for low-income households, and direct financial assistance to low-income families and farmers. However, the implementation of these measures has conflicted with stringent fiscal guidelines set by the country’s $3 billion International Monetary Fund (IMF) bailout program.
As a precondition for the release of a subsequent $695 million loan installment in May 2026, the IMF has mandated that Sri Lanka enforce strict “cost-recovery pricing” for fuel and electricity after June. Under the specific structural requirements of the Extended Fund Facility (EFF), the IMF expects the government to adopt an automated monthly pricing mechanism to synchronize domestic pump prices with international market rates, while ensuring that any remaining energy subsidies are entirely phased out and capped by September 2026.
