Sri Lanka Fuel Subsidy Allocation is set to end by June, according to the Chairman of the Ceylon Petroleum Corporation (CPC), as authorities move toward restoring cost-recovery fuel pricing amid rising global oil costs and ongoing economic reforms.
Sri Lanka Fuel Subsidy Allocation phase-out drives latest fuel price increase
The announcement comes after the latest fuel price revision, which officials say was necessary to reduce the financial burden on the Government while ensuring the country remains aligned with commitments under the International Monetary Fund-backed reform agenda.
Speaking to reporters on Monday, CPC Chairman D J A S De S Rajakaruna said the Government’s Rs. 57 billion subsidy allocation for fuel will be exhausted by the end of June. He explained that the recent fuel price increase was introduced as a measured step to manage mounting losses while minimizing the impact on consumers and the broader economy.
Rajakaruna noted that despite the latest price revision, fuel prices remain below their actual cost. According to him, the Government continues to absorb a substantial portion of fuel costs, particularly for diesel users.
“Actually, for the sake of the people, the Government is still bearing 100 rupees for every litre of diesel you buy,” he said.
He added that the Government is also absorbing approximately Rs. 20 per litre of petrol. These subsidies were maintained throughout April and May and will continue during June before the allocated funding is fully utilized.
The Sri Lanka Fuel Subsidy Allocation was introduced to cushion consumers from the impact of rising global oil prices, which escalated following tensions and disruptions linked to the Middle East conflict. However, maintaining subsidized fuel prices has placed increasing pressure on public finances and the state-owned fuel importer.
Rajakaruna revealed that CPC currently incurs losses of around Rs. 129 on every litre of diesel sold and approximately Rs. 60 per litre of petrol. While the Government absorbs a significant share of these losses through budgetary support, authorities have indicated that such support cannot continue indefinitely.
The International Monetary Fund has repeatedly emphasized the importance of cost-recovery pricing for both fuel and electricity as part of Sri Lanka’s ongoing IMF program. In its latest staff report released last week, the IMF stated that fuel pricing has not fully reflected increased costs since April, despite adjustments made following higher global oil prices.
The report noted that authorities have committed to compensating CPC for past losses through an explicit budgetary transfer. It also highlighted a Cabinet decision aimed at ensuring fuel subsidies remain transparent, budgeted, and gradually phased out by the end of September 2026.
The IMF described cost-recovery energy pricing as a critical pillar of the economic reform framework designed to strengthen fiscal sustainability and reduce losses within state-owned enterprises.
The pressure on CPC finances has intensified due to a sharp increase in fuel import costs. According to Rajakaruna, the corporation spent more than US$ 520 million on fuel imports in May alone. Before the escalation of the Middle East conflict, monthly import costs generally ranged between US$ 100 million and US$ 120 million.
The significant increase was driven by both higher international crude oil prices and increased import volumes. These developments have heightened concerns about foreign exchange outflows and the potential impact on Sri Lanka’s balance of payments.
Rajakaruna warned that prolonged increases in global oil prices could have wider economic consequences beyond fuel. He noted that higher fuel import bills place pressure on foreign currency reserves and could eventually affect the prices of many goods and services throughout the economy.
He urged consumers to reduce fuel consumption wherever possible, stressing that energy conservation would help mitigate the impact of global market volatility.
The Sri Lanka Fuel Subsidy Allocation phase-out also comes as policymakers attempt to balance social protection measures with broader fiscal reforms. While subsidies have provided temporary relief to households and businesses, economic analysts argue that long-term sustainability requires energy prices to better reflect actual market costs.
The IMF also highlighted concerns regarding electricity tariffs, noting that current pricing structures do not fully account for higher generation costs. The Fund indicated that further tariff adjustments may be required to restore full cost recovery in the power sector.
As Sri Lanka continues its economic recovery, the gradual removal of subsidies is expected to remain a key component of reform efforts. The latest fuel price increase signals the Government’s intention to reduce reliance on fiscal support while maintaining compliance with the IMF program and safeguarding macroeconomic stability.
With the subsidy allocation nearing its conclusion, policymakers and consumers alike will be closely monitoring future fuel pricing decisions and global energy market developments in the months ahead.