Sri Lanka Has Flexibility on Subsidies and IMF Targets Adjusted to Global Conditions

COLOMBO (News 1st); Sri Lanka’s Central Bank Governor Dr. P. Nandalal Weerasinghe has asserted that the country remains in compliance with key International Monetary Fund (IMF) programme conditions, particularly on cost-reflective fuel pricing, amid growing public concern over pricing policies and subsidy practices.

Responding to questions on whether deviations in fuel pricing, especially in the case of diesel, could impact the IMF’s ongoing programme review, the Governor maintained that the required conditions have been met. He expressed confidence that the IMF Executive Board would approve the combined review of the programme without issue following its scheduled discussions.

Dr. Weerasinghe explained that while cost-reflective pricing remains a core pillar of the IMF-supported reform programme, the framework allows for limited subsidies within defined thresholds. He noted that current policy permits a subsidy margin of around Rs. 100 for diesel and Rs. 20 for petrol, under which the pricing mechanism is still considered compliant.

Addressing concerns about public perception, particularly the belief that IMF conditions restrict the government’s ability to provide relief, the Governor clarified that the programme is not rigid. He underlined that the government retains the flexibility to negotiate and introduce targeted subsidies based on prevailing economic conditions.

“There is nothing that prohibits subsidies,” he said, pointing out that even under IMF engagement, the government has previously allocated significant financial support, such as additional funding to aid recovery in times of crisis, with the Fund’s concurrence.

He stressed that policy decisions ultimately rest with national authorities, provided they are justified and aligned with broader fiscal discipline.

The Governor reaffirmed that maintaining cost-reflective pricing remains essential for long-term economic stability, even while allowing for measured and temporary relief measures.

On the issue of Net International Reserve (NIR) targets, Dr. Weerasinghe stated that existing agreements with the IMF remain in place but acknowledged that adjustments have already been made in the latest reviews to reflect evolving global and domestic conditions. He indicated that further revisions could be considered in future reviews, depending on how external pressures develop.

He emphasised that the IMF programme operates on a process of continuous dialogue, negotiation, and consultation, allowing Sri Lanka to recalibrate targets in response to changing economic realities. Improved conditions could lead to more ambitious targets, while adverse developments may prompt relaxation.