Sri Lanka's state oil company has run out of cash to buy oil and the fuel shortage situation across the country could worsen, Sri Lanka's Energy Minister Udaya Gammanpila said, AFP reported.

He said the loss-making Ceylon Petroleum Corporation (CPC) continues to lose cash and has no funds to buy from abroad. He said the CPC had suffered losses of up to 42 percent on the sale of diesel at prices set by the government.

Diesel is the most commonly used fuel for public transport and motorists outside the capital Colombo report long queues for fuel at overcrowded petrol stations.

He said the CPC recorded a loss of 83 billion rupees ($415 million) last year alone. "Even if oil sales taxes are abolished, it is not enough to cover our losses," he said.

Sri Lanka's worsening foreign exchange shortage has severely affected the energy sector, which depends entirely on imports to meet its oil needs.

Fuel shortages have already led to the shutdown of thermal power generators, resulting in unannounced power cuts on the Indian Ocean island.

Sri Lanka's economy is also experiencing food shortages, with supermarkets being forced to limit staple foods, including rice.

The shortage pushed food inflation to a record 25 percent last month.

Tourism is a key source of foreign exchange for Sri Lanka, but the sector has collapsed since the Covid-19 pandemic.