Sri Lanka has reinstated a $126 million subsidy on diesel fuel in an effort to ease the burden of rising prices amid a spike in inflation. The announcement came on Tuesday as the country grapples with a 38-month high inflation rate of 8.0 percent, driven largely by increased costs of food and other essential goods.

The government’s move aims to mitigate the impact of recent fuel price hikes that have affected public transportation, a sector heavily reliant on diesel. Since the outbreak of conflict in the Middle East in February, global energy prices have surged, prompting Sri Lanka to raise fuel prices by approximately 50 percent.

Government spokesman Nalinda Jayatissa stated that diesel subsidies would be in effect for three months starting in October, allowing motorists to avoid bearing the full cost during this period. However, the subsidy will not extend to petrol. Jayatissa noted that the government had already allocated $175 million to subsidize both diesel and petrol in the three months following the escalation of the Middle East conflict.

“We are trying to make sure that the increase is not too steep, at least for diesel,” Jayatissa said during a press briefing in Colombo, adding that the government hopes for a resolution to the Middle East hostilities soon. “Very high global oil prices are hurting us badly,” he remarked.

The decision to reintroduce the subsidy has raised concerns from the International Monetary Fund (IMF), which has warned that failure to ensure full cost recovery on energy sales could push Sri Lanka back toward a financial crisis. The IMF has advocated for subsidy reforms as part of broader fiscal measures to stabilize the country’s economy.

Sri Lanka remains heavily dependent on imported fuel, making it vulnerable to international price fluctuations. The recent inflation surge reflects wider economic pressures, complicating the government’s efforts to balance economic stability with social welfare needs.