By: Staff Writer
November 03, Colombo (LNW): Sri Lanka’s fragile economic recovery faces renewed stress as soaring vehicle imports drive a fresh wave of foreign exchange outflows and growing exposure among financial institutions through vehicle leasing. According to the Central Bank of Sri Lanka (CBSL), import spending on personal and commercial vehicles surged to US$ 286 million in September 2025, bringing the total bill for the first nine months of the year to a staggering US$ 1.2 billion.
Of this, personal vehicles accounted for US$ 227.5 million, while commercial vehicles made up US$ 58.7 million. The sharp import spike following the relaxation of pandemic-era restrictions has injected short-term momentum into the automobile market but triggered concerns over renewed pressure on foreign reserves and exchange rate stability.
Economists warn that the sudden rise in vehicle imports reflects a classic case of policy contradiction. After maintaining tight import controls to preserve foreign currency, Sri Lanka has now reopened the market without adequately managing liquidity or credit growth. “Each wave of import liberalisation increases dollar demand, creating pressure on the rupee and potentially undermining the Central Bank’s deflationary stance,” one analyst observed.
Vehicle imports have traditionally been a major revenue source for the government, contributing through customs duties, excise taxes, and VAT. However, the foreign exchange cost of these imports often outweighs fiscal gains, especially when importers use bank loans or leasing schemes, fuelling credit expansion. Banks and finance companies have intensified leasing promotions to capture the rising demand, further linking domestic credit growth to external imbalances.
Data from the financial sector shows a double-digit rise in vehicle leasing portfolios since mid-2025, driven largely by pent-up consumer demand and a rebound in business sentiment. Analysts caution that if the rupee weakens further, debt-servicing pressures could rise for both borrowers and lenders, creating risks for financial stability.
Overall imports in September 2025 hit US$ 2.05 billion, up sharply year-on-year, with intermediate goods—including fuel climbing 13.4% to US$ 1.18 billion, indicating higher production activity. Investment goods also grew 6.8% to US$ 346 million, but machinery imports dipped even as commercial vehicle purchases rose more than tenfold compared to last year.
The Central Bank has continued to purchase dollars US$ 177.3 million in September alone—to strengthen reserves. However, market participants note that these inflows are partly offset by excess liquidity and import-driven outflows. Experts argue that buy–sell swap operations, which inject rupees into the system, have unintentionally spurred lending that fuels import growth and rupee depreciation.
As Sri Lanka attempts to balance growth with external stability, the vehicle import boom underscores the fragile link between domestic consumption, credit expansion, and foreign exchange vulnerability a recurring policy dilemma that continues to challenge the post-crisis economy.
