January 22, Colombo (LNW): President Anura Kumara Dissanayake has announced that vehicle permit holders will be given a chance to import vehicles when the country resumes vehicle imports, following a five-year hiatus.
Speaking on the Satana programme on Sirasa TV, the President outlined the rationale behind this decision and the careful steps being taken to manage its potential economic impact.
In 2018, Sri Lanka’s vehicle imports amounted to nearly US$ 2 billion, with a slight decline to approximately US$ 1.4 billion in 2019. On average, the nation imports between 1 and 2 billion US dollars worth of vehicles each year.
While the decision to lift the suspension on vehicle imports was not driven by robust foreign reserves, the President stressed that it was a strategic move to stimulate the country’s economy.
However, he cautioned that the reintroduction of imports must be carefully managed to minimise its effect on the country’s dollar reserves and prevent further economic instability.
President Dissanayake explained that, at present, the vehicle market includes cars imported at the 2019 dollar exchange rate, which was around Rs. 190 to the US dollar. With the rupee now nearing Rs. 300 to the dollar, the cost of vehicles is expected to rise by around 40 per cent, reflecting the currency devaluation.
He also highlighted the presence of a substantial number of second-hand vehicles in the market, many of which were purchased through leasing arrangements.
If the price difference between new and second-hand vehicles becomes too narrow, it could create a new crisis, particularly in the second-hand vehicle market, with potential negative repercussions for leasing companies and financial institutions.
The President emphasised the importance of striking a balance in vehicle prices to avoid instability. If new vehicles become too expensive, it could lead to disruptions in the second-hand vehicle market, where many consumers have already made significant investments.
He stated that the government would need to carefully monitor the situation and adjust policies to prevent market imbalances.
Discussions have also been held with the Central Bank to ensure that the allocation of foreign currency for vehicle imports is managed prudently.
The President confirmed that vehicle imports will be phased throughout the year to avoid putting excessive strain on the country’s foreign exchange reserves, particularly in February when imports are set to begin.
A sudden influx of vehicle imports, potentially worth up to US$ 1.2 billion in just one month, could lead to further economic strain, he warned.
On the issue of vehicle permits, President Dissanayake made it clear that it was unlikely permit holders would be given preferential treatment this time. In 2018, permit holders used US$ 1.9 billion to import vehicles, a figure that the government is keen to reduce.
The aim is to limit vehicle imports to around US$ 1.2 billion annually, while taking into account the market’s capacity and the potential rise in prices.
The President acknowledged the risks involved in this decision, noting that further actions would depend on how the market evolves.
