• Subsidy seen as most practical option to cushion rising fuel prices
• Amount, implementation date yet to be finalised
• Existing IMF framework envisages end-Sept. phase-out of temporary subsidies

The International Monetary Fund (IMF) has not rejected President Anura Kumara Dissanayake’s proposal to provide a fresh fuel subsidy to cushion consumers against rising global fuel prices during its latest discussions with the Government, according to Ministry of Energy Secretary G.M.R.D. Aponsu. 

Speaking to The Sunday Morning, Aponsu said that several possible measures to address the impact of rising fuel prices had been discussed, with a subsidy emerging as the most practical option at present. 

“The IMF did not reject the President’s suggestion to provide a fuel subsidy,” he said, referring to the latest discussions. He added that while the proposal remained under consideration, the amount of the subsidy and the date from which it would take effect had yet to be finalised.

According to Aponsu, several options have been considered in response to the pressure created by rising international fuel prices, but the subsidy appears to be the most workable solution at present. 

The development comes as the Government considers measures to prevent the full impact of higher international fuel prices being passed on to consumers.

President Dissanayake previously stated that the Government expected to provide a subsidy to cushion consumers from a possible increase in domestic fuel prices from 1 October, with global market movements indicating that prices would otherwise have to rise under the existing pricing mechanism. 

The latest proposal is significant in the context of Sri Lanka’s commitments under the IMF-supported Extended Fund Facility (EFF). 

Under the existing programme framework, temporary fuel, electricity, and fertiliser subsidies and additional Aswesuma support introduced in response to the Middle East-related energy shock were to be maintained within an overall ceiling of Rs. 100 billion and fully phased out by the end of September or earlier if the allocation was exhausted. 

The IMF programme also envisages the restoration of cost-recovery fuel pricing, while allowing targeted assistance to vulnerable groups subject to the Government meeting its fiscal targets. 

During an IMF press conference in May, Mission Chief for Sri Lanka Evan Papageorgiou confirmed that the fund had discussed the temporary subsidy package with the authorities and noted its Rs. 100 billion ceiling and end-September expiry. 

The proposed fresh subsidy therefore comes as the Government weighs how to cushion consumers against renewed fuel-price pressures while continuing to meet fiscal and cost-recovery commitments under the IMF programme. 

Details of the proposed subsidy, including its value, duration, eligibility, and implementation mechanism, are yet to be finalised, according to the Energy Ministry. 

Meanwhile, Sri Lanka remains under the IMF’s EFF, with Papageorgiou stating last week that the fund’s economic projections continue to assume that Sri Lanka will regain access to international capital markets “in 2027 or thereabouts”. 

He said that Sri Lanka would need access to both domestic and international sources of financing to build longer-term economic resilience, while rebuilding foreign exchange reserves would remain important as external debt repayments increased.