Cash-strapped Sri Lanka announced a 15% increase in electricity tariffs on Wednesday, part of a broader strategy to meet the conditions of its $2.9 billion International Monetary Fund (IMF) bailout and stabilize its fragile economy.
The Public Utilities Commission of Sri Lanka (PUCSL) approved the hike, which takes effect Thursday, allowing the state-owned Ceylon Electricity Board (CEB) to boost revenue following months of financial strain.
The decision comes just six months after the government mandated a politically unpopular 20% price cut in January—a move that pushed the utility deeper into deficit.
The January price cut, seen by many as a populist measure ahead of elections, was widely criticized for undermining the national budget and threatening the financial health of the CEB. Analysts warned that such subsidies clashed with IMF recommendations requiring cost-reflective pricing across key public services.
Sri Lanka’s commitment to eliminating subsidies and strengthening state-owned enterprises was a core component of the IMF’s four-year bailout agreement, signed in March 2023, aimed at rescuing the island nation from its worst economic collapse in modern history.
In April 2022, the country defaulted on its $46 billion external debt, plunging into bankruptcy amid dwindling foreign reserves that left it unable to import basic necessities such as fuel, food, and medicine. Widespread shortages sparked months of unrest and culminated in the ousting of then-President Gotabaya Rajapaksa.
His successor, President Ranil Wickremesinghe, implemented sweeping austerity measures, including tax hikes and subsidy removals, to align with IMF directives. Though he lost power in the September 2024 elections, new President Anura Kumara Dissanayake has maintained the IMF-backed reform agenda.
Thanks to the reforms, inflation which soared to nearly 70% in September 2022 has sharply declined, with the country entering a deflationary phase in recent months.
The IMF has noted signs of gradual economic recovery, though it cautions that significant risks persist, especially with public debt restructuring and financial sector vulnerabilities.
The latest tariff hike is expected to ease fiscal pressure and support Sri Lanka’s bid to regain investor confidence, even as citizens brace for higher utility costs amid an already challenging economic landscape.
