Sri Lanka risks economic downturn amid market distortions and Middle East crisis, warns Jafferjee

By Shannine Daniel

Sri Lanka could face a significant economic downturn if the conflict in the Middle East persists and market forces are not allowed to operate freely, JB Securities Chief Executive Officer and Advocata Institute Chairperson Murtaza Jafferjee warned at a recent webinar organised by DFCC Bank.

Speaking at the session titled ‘Geopolitics in Motion: Understanding the Middle East Crisis and Its Ripple Effects’, Jafferjee said the country’s 2022 economic crisis was largely driven by the prolonged government intervention in key markets. 

He noted that the authorities had prevented the prices from signalling the true scarcity of resources by interfering in foreign exchange, interest rates and fuel pricing for nearly one and a half years.

He explained that in the first quarter of 2022, demand for electricity, petrol and diesel surged sharply, while the price distortions enabled many companies to record strong inflation-adjusted profits.  “We are permitting certain price adjustments to take place but not to the extent that it should be taking place,” Jafferjee noted.

He said Sri Lanka’s economic growth is likely to fall below the Central Bank’s initial forecast of 4 percent to 5 percent for this year, adding that the economy demonstrated a strong momentum from January to end-February.

He also called for the fuel quotas to be dismissed and for the market forces to be allowed to reflect the true value of fuel.  Referring to the earlier 15-litre quota imposed on the three-wheelers, he said the restriction led to a doubling of fares and a decline in service availability. Due to the tensions in the Middle East and global fuel supply concerns, the government recently reinstated the National Fuel Pass QR system and an odd-even fuel distribution mechanism.  On March 21, 2026, Ceylon Petroleum Corporation (CPC) announced the revised weekly fuel quotas, including 20 litres for three-wheelers and 25 litres for cars. Jafferjee also pointed to the absence of proper regulations for fuel pricing, highlighting that the existing legislation dates back to the 1961 CPC Act. 

While the private operators such as Lanka IOC and Sinopec can technically set their own prices, they tend to follow CPC’s pricing, due to its dominant 58 percent market share.