“Recent tensions in the Middle East are likely to pose risks to the Sri Lankan economy, including a potential uptick in petroleum prices which could weigh down on economic activities with the possible escalation of inflation and resultant implications for interest rate,” the Ministry said in a recent report.

It pointed out that high global commodity prices particularly, petroleum prices could adversely affect the import cost, domestic consumer prices, production costs as well as budget costs, while also potentially affecting the external demand for Sri Lankan goods.

“High adjustment costs to external shocks may impact domestic production, international trade, domestic prices and overall growth,” it noted. The government also remains cautious of risks associated with natural disasters and unfavourable weather conditions which could adversely affect agriculture, hydropower generation and government budget.