By: Staff Writer
September 29, Colombo (LNW): Sri Lanka’s decision to lift the four-year ban on vehicle imports has unleashed a massive surge in demand, with Letters of Credit (LCs) for imports already nearing US$1.6 billion, raising concerns over potential pressure on the country’s fragile foreign exchange reserves.
Despite assurances from senior officials that the outflows are “manageable,” financial analysts warn that the timing of this import spree could complicate Sri Lanka’s commitments under the International Monetary Fund (IMF) programme, which requires the country to build reserves to over US$7 billion by year-end.
Director General of Customs Seevali Arukgoda confirmed that there are no foreign exchange ceilings on commercial vehicle imports, with only a one-vehicle-per-year restriction on private buyers. “There is no threshold. Any amount of imports can come in. It will not negatively affect foreign reserves,” he asserted.
However, data from the banking sector indicates a sharp spike in LC openings between June and September 2025, largely driven by pent-up demand from vehicle dealers and leasing companies preparing for the post-ban market. With each LC backed by U.S. dollars, the foreign exchange outflow over the next few months could exceed US$2 billion, depending on shipping and settlement timelines.
Deputy Secretary to the Treasury Ajith Abeysekera defended the Government’s position, saying the current LC volume remains within “expected parameters” agreed under the IMF programme. “It does not look like it will impact foreign reserves,” he said, stressing that the IMF team stationed in Colombo is monitoring the country’s fiscal and external stability closely.
Officials maintain that the surge in imports is providing an unexpected fiscal windfall. Customs revenues from vehicle imports have already exceeded Rs. 700 billion, significantly strengthening Government coffers after years of stagnation. Yet, economic experts caution that short-term revenue gains may not offset the long-term foreign exchange cost, especially if importers settle LCs simultaneously during the final quarter.
Health and Mass Media Minister Dr. Nalinda Jayatissa, also the Cabinet Spokesperson, insisted that the Central Bank has raised no objections to the scale of imports. “We are doing this in cooperation with the CBSL, and there’s been no indication that it will harm reserves,” he said.
While officials argue that demand has peaked and is now stabilising, market observers note that the renewed appetite for vehicles especially hybrids and electric cars reflects rising consumer confidence and credit expansion. But if foreign inflows from tourism, remittances, and exports falter in coming months, Sri Lanka’s reserve accumulation target of US$7.5 billion could come under threat.
As one senior banker observed, “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 monetary controls tomorrow.”
