Sri Lanka’s Government should avail of more measures to cushion the impact of a more significant, incoming global oil price shock on the local economy, by utilising its cash reserves for subsidies, adjusting taxation, or making cash transfers to critical select groups of the population, Committee on Public Finance Chairperson Harsha de Silva said on Monday (9).
Speaking on Derana 360, responding to the CBSL Governor’s comments on accommodating the price shock through Sri Lanka’s inflation space, de Silva said: “You can use the price formula. I’m not saying that you shouldn’t. But, we have more tools, measures to help reduce the impact of the price shock being felt among the people.”
“This is a shock. This is a temporary disruption.The response we should have for a temporary disruption and a long-term trend should be two separate things. Then how can we absorb this shock?”
De Silva said the Government has adequately built its liquidity buffers through the unexpected increase in vehicle import tax revenues last year, Pay As You Earn (PAYE) taxes, the Special Commodity Levy on food and other taxation which saw significant revenues earned. “There is cash on hand. They cannot say they don’t.”
Referring to the Government’s cash buffers, which had dipped below its lower limit of Rs. 1 trillion in December 2025, he said: “That trillion dropped to Rs. 750 billion. When JVP took over the Government from Ranil Wickremesinghe, there was around Rs. 780 billion. That is what went up to Rs. 1 trillion, and it once again dropped to Rs. 750 billion. By the time December was over, there was around Rs. 750 billion.”
He added that at present, it is likely another Rs. 100-200 billion may have been directed towards it by January and February, making it possible for the Government to help cushion the impact of the Middle East conflict on oil prices, in the short-term.
“This is an unusual circumstance. It’s an outlier, we don’t know how long this might go on. Trump doesn’t know, neither does Iran. Therefore, we can implement an oil [petrol/diesel] subsidy in the first 30 days, by making it known to the public that this is a temporary measure,” de Silva suggested.
“The next is that taxes can be adjusted. Therefore there will be an impact on government fiscal revenue. However, if you think about it, the Government was able to earn high revenues from people,” he said.
Lastly, he suggested that the Government could also choose to make direct cash transfers to a select group of people, who are to be selected based on eligibility testing.
“Thirdly, say we allow this impact to be felt within the local economy, we can make cash transfers. For a selected subsect of people, they would have to make payments for their petrol or diesel, but be made a cash transfer immediately. These people will be chosen through ‘means testing’. We already make transfers to Aswesuma recipients.”
Though Sri Lankan government officials said that its petrol and diesel stocks were sufficient, prices had been hiked on Monday, with a litre of Petrol 92 Octane raised by Rs. 24 to Rs. 317, a litre of Petrol 95 Octane raised by Rs. 25 to Rs. 365, a litre of Diesel raised by Rs. 22 to Rs. 303, a litre of Euro 4 Diesel raised by Rs. 24 to Rs. 353, and a litre of Kerosene raised by Rs. 13 to Rs. 195 a litre.
On Monday, the price of an oil barrel nearly crossed $ 120, the highest since the global pandemic, before falling in extended trading after United States President Donald Trump said he was considering seizing control of the Strait of Hormuz, the crucial corridor used to transport at least 20% of global crude oil and refined products consumption.
According to international reports, the Finance Ministers of the G7 were slated to convene on the possibility of releasing buffer oil in storage to counter the price rally that has been escalating over the war in the Middle East, which at present is expected to continue, indefinitely.