Sri Lanka uses fuel subsidies to manage inflation

The Sri Lankan government is utilizing fuel subsidies and vehicle import surcharges to mitigate inflation caused by rising international oil prices and conflicts in West Asia. Central Bank Governor Nandalal Weerasinghe stated that these measures have been instrumental in managing inflation levels, which reached 8 percent in August.

To support this, the administration of President Anura Kumara Dissanayake approved a Rs. 41 billion fuel subsidy for a three-month period, following a previous Rs. 57 billion allocation. These funds are primarily dedicated to diesel to protect public transportation and broader economic stability. Additionally, a 50 percent surcharge on Customs Import Duty for new personal vehicles has been extended through December 31 to prevent foreign currency outflows.

Despite these interventions, the state-owned Ceylon Petroleum Corporation (CPC) faces significant financial pressure. CPC Chairman DJ Rajakaruna reported that the company incurs losses on every litre of fuel sold due to the gap between international costs and subsidized domestic prices. For instance, while diesel costs the CPC LKR 528 per litre, it is sold at LKR 392, leaving a loss of LKR 136 per litre even after government subsidies. Consequently, the CPC has urged citizens to reduce fuel consumption to minimize the impact on the country's foreign exchange reserves.