Sri Lanka's Economy Better Equipped for Oil Price Shock

Sri Lanka's economy is better equipped to handle rising oil prices compared to 2022, according to Moody's Ratings. The country has implemented recent reforms, including energy-pricing adjustments and cost-recovery tariffs under International Monetary Fund programmes, which have boosted its resilience.

The Middle East conflict continues to affect the global energy market, with central scenarios projecting oil prices between $90 and $110 per barrel for the remainder of 2026. This is a concern for Sri Lanka, Bangladesh, and Pakistan, as they rely heavily on imported energy.

While inflationary pressures from high oil prices remain lower than in 2022, the country's foreign exchange buffers are still a concern due to declining reserves. Moody's has lowered growth forecasts for these countries due to the ongoing conflict, with Sri Lanka's revisions being smaller compared to 2022.