COLOMBO: Sri Lanka raised fuel prices on Tuesday and warned of possible petrol rationing with importers struggling to pay for oil, in a worsening economic crisis that has also sparked food shortages.

The move comes just days after international ratings agency Fitch downgraded the country over fears of a sovereign default on its $26 billion foreign debt.

The foreign exchange reserves are almost depleted and the authorities shuttered the island’s only refinery last month.

“The latest price increase is aimed at discouraging consumption,” an official from the state-run Ceylon Petroleum Corporation told AFP.

“Given the dollar crisis, we may have to introduce fuel rationing unless consumption is brought down.”

The CPC and Lanka IOC, the island’s sole fuel retailers, hiked petrol prices more than 10 per cent to Rs210 ($1.05)/litre, with smaller raises for kerosene and diesel.

Traders in Sri Lanka have struggled to get dollars to finance imports of food, medicine and raw materials after the island’s tourism-dependent economy was hammered by the pandemic. Supermarkets have rationed staples such as sugar, lentils, tinned fish and rice.

The government had foreign reserves of just $1.58 billion at the end of November, down from $7.5 billion when President Gotabaya Rajapaksa took office in 2019.

The central bank has appealed for foreign currency, even loose change that people may have after returning from overseas trips.

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