Experts outline policy choices as Govt. faces toughest test to fiscal discipline yet

SRI Lanka's hard-won fiscal stability could face its toughest test yet as the ongoing Middle East conflict pushed global oil prices above $ 100 per barrel, with economists warning that maintaining fiscal discipline will depend on preserving costreflective energy pricing and carefully managing price shocks.

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Ceylon Petroleum Corporation (CEYPETCO) and Lanka IOC announced price revisions yesterday, but uncertainty remains as to the duration of the Mideast conflict, how high oil prices could trend, and how much space the Government has to manoeuvre.

CT Smith Asset Management Director/CEO Bimanee Meepagala, Centre for Poverty Analysis Executive Director Economist Prof. Sirimal Abeyratne, and Verité Research Executive Director Dr. Nishan de Mel told the Daily FT that while Sri Lanka has some macroeconomic buffers, sustained high energy prices could increase import costs and test the Government's commitment to fiscal consolidation.

Meepagala said the Government should continue maintaining cost-reflective fuel and electricity pricing to avoid burdening its fiscal accounts, while prevailing low inflation provides a buffer to absorb price shocks.

"In 2025, fuel accounted for roughly 18% or $ 4 billion of Sri Lanka's total imports. The CEYPETCO imported crude at an average price of $74 per barrel in 2025. The recent price escalation to over $100 per barrel marks an increase of more than 33% compared to last year's average," Meepagala told the Daily FT.

"If prolonged, this would likely impact Sri Lanka, causing it to spend over $ 1 billion extra on oil imports," she said.