The government, which came into power after a Jan. 8 presidential poll, cut fuel prices by up to 22 percent with effect from Thursday following a promise by incoming president Maithripala Sirisena to reduce fuel taxes.
Sirisena had promised to fight corruption and reduce the cost of living in the 100 days before a parliamentary election due after April 23. Power and Energy Minister Champika Ranawaka said the price reduction will reduce government revenue by 65.5 billion rupees.
He said, however, that the government would stick to the 1.654 trillion rupee expenditure plans outlined in the previously announced 2015 budget.
Former president Mahinda Rajapaksa's budget had aimed to reduce the fiscal deficit to a 37-year low of 4.6 percent of GDP in 2015.
However, the new government has said Rajapaksa had altered the macroeconomic numbers to show a rosy picture.
Economists have raised concerns over the new government's commitment to populist policies without any new revenue measures. Ranawaka said the new measures will be revealed in the an interim budget scheduled for Jan. 29.
Finance Minister Ravi Karunanayake told Reuters that the revenue reduction would be managed with some 'innovative measures' in the interim budget.