Thursday Apr 23, 2026
Thursday Apr 23, 2026
Thursday, 23 April 2026 05:53 - - {{hitsCtrl.values.hits}}
Sri Lanka’s economic recovery is facing renewed pressure from the Middle East conflict, with rising fuel costs, disrupted supply chains, and potential shocks to remittances threatening to reverse gains in inflation and household welfare, according to the World Food Programme (WFP).
A latest assessment warns that volatility in the Gulf is transmitting across multiple channels, including energy, food, agriculture, and external earnings, with direct implications for inflation, balance of payments stability, and household consumption.
Fuel prices have already risen between 33% and 40% amid global supply disruptions, pushing up electricity tariffs and transport costs, while oil prices remain at a four-year high. Given that Sri Lanka imports 63% of its energy and relies on oil for nearly 40% of supply, the pass-through to domestic prices is immediate and broad-based.
The report highlights that the impact is cascading into food markets. Higher energy and fertiliser costs are raising production expenses and import bills, with global prices of staples such as wheat, corn, rice, and vegetable oil increasing. In 2025 alone, Sri Lanka imported $ 2.5 billion worth of food, underscoring its exposure to external price shocks.
Disruptions to the Strait of Hormuz, which handles around 30% of globally traded fertiliser, pose an additional risk to agriculture. Sri Lanka imports up to 100% of its urea requirements, meaning higher fertiliser prices could reduce usage by farmers and lower yields in a sector that employs 26% of the labour force.
At the same time, the country’s external sector faces downside risks. Around 80% of remittances originate from the Gulf, making inflows vulnerable to prolonged instability. Any slowdown would weaken household incomes, pressure the rupee and strain foreign reserves.
Tourism, another key foreign exchange earner contributing up to 9.4% of GDP in 2024, is also showing early signs of impact. A decline in Middle Eastern airline capacity in March has coincided with a drop in arrivals compared to previous years.
The WFP notes that while macroeconomic stabilisation has improved conditions since the 2022 crisis, household food security remains fragile, particularly following the disruption caused by Cyclone Ditwah. Food insecurity rose sharply in affected areas in late 2025, and although there has been some recovery in early 2026, rising fuel costs risk reversing these gains.
With fuel prices closely linked to food inflation, the recent 30-35% increase in domestic fuel costs is expected to push up both food and non-food expenditure, keeping inflationary pressures elevated despite earlier stabilisation.
The WFP cautions that the combined effects of higher import costs, weaker remittance inflows, and supply disruptions could disproportionately impact vulnerable households, particularly daily wage earners and estate sector workers, reinforcing the need for close monitoring and targeted policy responses.
