📉 Fuel Subsidy Risks Sri Lanka’s Fiscal Buffers and IMF Program, Warns HNB Stockbrokers

A new report highlights that Sri Lanka’s recently announced three-month fuel subsidy could erode fiscal cushions and complicate IMF commitments if extended beyond its initial timeframe. • Overall Fiscal Impact: The three-month subsidy—offering a relief of Rs. 100 per litre on diesel and Rs. 20 per litre on petrol—is estimated to cost approximately Rs. 57 Bn (Rs. 19 Bn per month). • Extension Risks: If extended until the end of 2026, the cost could escalate to Rs. 150 Bn, and potentially surpass Rs. 200 Bn if global crude prices rise or the rupee weakens. • Current Fiscal Cushion: HNB Stockbrokers notes the immediate cost is manageable due to a strong primary surplus of Rs. 545.5 Bn recorded in Jan-Feb 2026, which already exceeds the full-year target of Rs. 360 Bn. • IMF Disconnect: The flat per-litre subsidy conflicts with IMF commitments on cost-reflective energy pricing required for the upcoming Fifth and Sixth Reviews of the EFF. • Lack of Targeting: Financial experts heavily criticize the measure for failing to align with IMF preferences for targeted relief, as the broad-based subsidy benefits all motorists rather than lower-income households most vulnerable to the Middle East oil shock.