By: Staff Writer
March 24, Colombo (LNW): Sri Lanka’s ongoing fuel pricing dilemma is exposing deep structural inequalities, with experts warning that current policy tools may be doing more harm than good particularly to the country’s most vulnerable communities. According to Dhananath Fernando, Chief Executive Officer of Advocata Institute, fuel consumption patterns in the country are heavily imbalanced, raising critical questions about fairness and economic efficiency.
Speaking at a recent webinar hosted by CMA Sri Lanka, Fernando highlighted that the wealthiest 30% of Sri Lankans account for nearly 70% of total fuel consumption. This stark disparity, he argued, underscores the need for smarter pricing mechanisms rather than blanket rationing systems that fail to differentiate between high and low consumers.
Fuel prices, even after recent hikes exceeding 25% following the escalation of the Middle East conflict that began on 28 February, still fall short of reflecting true market costs. Fernando estimates that petrol prices would need to increase by approximately Rs. 100 per litre and diesel by Rs. 200 to align with actual economic conditions, assuming current taxes and margins remain unchanged.
Despite these realities, Sri Lanka continues to rely significantly on its QR-based fuel rationing system, a measure initially introduced during periods of acute shortages. Fernando cautioned that while rationing may have been necessary at the height of the crisis, it is not a sustainable long-term solution. He stressed that suppressing price signals distorts consumption patterns and discourages efficient resource allocation.
“Market-based pricing is essential,” he noted, emphasizing that allowing prices to reflect scarcity would naturally curb excessive use particularly among higher-income groups who dominate fuel consumption.
Meanwhile, Anura Kumara Dissanayake has signaled that the Government is reviewing fuel taxes and considering targeted subsidies to cushion the impact on vulnerable populations. In addition, authorities have granted temporary licences to 40 private firms to import fuel for industrial use, with transactions conducted in US dollars. This move aims to ease supply constraints, particularly for export-oriented sectors.
Fernando also called for the removal of price caps to encourage greater private sector participation in fuel imports. Allowing companies to import and sell fuel at market-driven prices, he argued, could improve supply resilience and reduce pressure on public finances.
However, he warned that any transition toward higher fuel prices must be accompanied by robust social protection measures. Without targeted safety nets, the burden of rising costs could disproportionately fall on low-income households, exacerbating poverty and inequality.
Beyond immediate consumer impact, the ripple effects of fuel price adjustments are expected to spread across the broader economy. Rising energy costs could drive up food prices, strain export competitiveness, disrupt tourism recovery, and intensify pressure on Sri Lanka’s balance of payments.
Fernando’s central message is clear: external shocks are inevitable, but policy responses determine their long-term consequences. Misguided interventions, he cautioned, risk deepening the crisis rather than resolving it especially for those least equipped to absorb the shock.