Govt. to review fuel relief after three months: Deputy Minister

• States no immediate need to decide on extension, assures adequate cash buffers 
• Says surcharge producing results, with average daily forex requirement for vehicle imports below $ 4 m

Deputy Finance and Planning Minister Dr. Anil Jayantha Fernando yesterday said the Government will decide whether to extend its fuel subsidy and relief measures after assessing economic conditions at the end of the current three-month period, while early indications show that the recently imposed 50% surcharge on vehicle imports has successfully reduced import demand.

Addressing a special media briefing, he said the Rs. 10 billion relief package introduced by the Government was designed as a temporary response to the economic impact of the Middle East crisis and was never intended as a long-term support measure.

“From the outset, the Government made it clear that the Rs. 10 billion relief package was introduced to address a specific external shock and its impact on the economy. Our assessment at the time was that the immediate effects would be concentrated within the first three months,” he said.

Dr. Fernando stressed that policy responses to external shocks should be calibrated according to evolving circumstances rather than being extended automatically.

“It would not have been prudent to assume that an external event, such as the conflict in the Middle East, would necessarily require relief measures for one year or longer. External shocks should be addressed through short-term policy responses based on available information,” he said.

He noted that there was no immediate need to decide on an extension of the subsidy program, adding that the Government would continue monitoring developments before taking further action. 

“Therefore, there is no need to rush into a decision regarding what happens after the three-month period. We will assess developments and respond accordingly. The Government has adequate cash buffers and will continue to maintain fiscal discipline,” Dr. Fernando said.

The Deputy Minister pointed to improving global conditions, noting that oil prices had eased considerably after the initial spike triggered by geopolitical tensions.

“Current global developments are encouraging. Oil prices, which surged sharply during the initial stages of the crisis, have since fallen significantly and are approaching previous levels. If that trend continues, we expect to manage the situation effectively,” he said.

However, Dr. Fernando added that the Government remained prepared to intervene if circumstances changed. 

“If circumstances require further intervention, we will provide targeted relief based on the prevailing conditions and the best available information,” he said.

Commenting on the impact of the 50% surcharge imposed on vehicle imports, Dr. Fernando said the measure had produced the intended results by cooling excessive import demand and easing pressure on foreign exchange reserves. “Yes, the surcharge has had a noticeable impact,” he said.

According to him, speculative import activity continued immediately after the surcharge was introduced, with importers rushing to open letters of credit (LCs) for vehicle purchases.

“One day after the surcharge was imposed, the value of vehicle-related LCs reached around $ 88 million,” he revealed.

As a result, he explained the daily foreign exchange requirements for vehicle imports rose sharply in the initial stages and has since moderated significantly.

“By June, the average daily value had fallen to below $ 4 million. According to the latest data available up to 12 June, the figure stood at $ 3.79 million per day and continues to decline,” he said.

Dr. Fernando said the trend demonstrated that the surcharge had been effective in discouraging panic-driven imports and helping restore more sustainable demand levels.

“This demonstrates that the surcharge has been effective. People have realised that there was no need for panic-driven imports, and demand has begun returning to more sustainable levels,” he said.

The Deputy Minister added that the moderation in vehicle imports had also improved the Government’s projections for annual import expenditure, easing concerns over external sector pressures and foreign exchange outflows.