### Fiscal Discipline Tested by Global Oil Surge 📈

Sri Lanka faces a significant test to its fiscal consolidation as the Middle East conflict pushes global oil prices above US$ 100 per barrel, a 33% increase over the 2025 average of US$ 74. • Fiscal Impact & Imports Current projections suggest a prolonged price hike could increase the national import bill by over US$ 1 Bn. In 2025, fuel accounted for 18% of total imports (approx. US$ 4 Bn). • Macroeconomic Buffers Economists note that Sri Lanka is currently better positioned to absorb shocks due to: Low inflation (1.6% as of February). Healthy money market liquidity exceeding Rs. 337 Bn. Sufficient fuel stocks maintained until April. • Policy Recommendations Energy Pricing: Experts urge the government to maintain cost-reflective pricing for fuel and electricity to avoid bailing out state utilities and straining the primary balance. Formula Refinement: Analysts suggest "de-amplifying" price shocks by refining how taxes and costs are embedded in current pricing formulas. • Sectoral Risks Beyond energy, a sustained conflict threatens tea exports, tourism arrivals, and worker remittances from the Gulf region, potentially slowing overall GDP growth. _Note: Based on provisional market data and expert commentary as of March 10, 2026._