Vehicle import boom pressures SL’s dollar reserves
View(s):Sri Lanka’s recent decision to lift the 4-year ban on vehicle imports has ignited a surge in demand, swelling government coffers while simultaneously heightening pressure on the country’s fragile foreign exchange reserves.
According to official data, vehicle imports reached US$ 918 million during the first eight months of 2025, accounting for nearly 7 per cent of total merchandise imports, which stood at $ 13.34 billion.
Letters of Credit (LCs) opened for vehicles have exceeded $ 1.2 billion by end-August signalling a further outflow of dollars in the coming months as these commitments are settled.
Despite robust inflows from exports, remittances and tourism estimated at nearly $ 19 billion by August, Sri Lanka’s official reserves rose by just $ 55 million to $ 6.2 billion by August.
Economists warn that simultaneous LC settlements could reduce reserves by several hundred million dollars before year-end, jeopardising the Central Bank’s US$ 7.5 billion reserve accumulation target under the IMF programme.
Deputy Treasury Secretary Ajith Abeysekera defended the Government’s position, insisting the current LC volume remains “within expected parameters” and that it “does not look like it will impact foreign reserves.” He noted that the IMF’s Colombo mission continues to closely monitor fiscal and external stability. While officials highlight the Rs. 700 billion in customs revenue generated from vehicle imports an unexpected fiscal windfall after years of stagnation, analysts caution that these rupee inflows do not translate into foreign exchange reserves.
As one economist put it, “We are earning in rupees but spending in dollars. That mismatch is where the pressure begins.”
Commercial banks and leasing companies, meanwhile, have seen renewed activity in vehicle financing.
Market observers say demand remains strong, particularly for hybrid and electric vehicles, reflecting renewed consumer confidence and easier credit access.
A senior banker summed up the concern: “The question is not whether we can import, but whether we can afford this pace without derailing external stability. A few billion dollars in vehicles today could mean tighter controls tomorrow.”
For now, the Government appears confident that inflows will hold steady, but with over a billion dollars in LCs still to be settled, the coming months will test the delicate balance between fiscal gain and external vulnerability.
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