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.

By: Staff Writer

November 03, Colombo (LNW): In a move that has sparked renewed scrutiny, the government has granted sweeping tax exemptions to four companies operating under the Colombo Port City project, despite earlier assurances to the International Monetary Fund (IMF) to suspend such incentives until a transparent legislative framework is enacted.

According to extraordinary gazette notifications 2445/2 through 2445/5, issued by President Anura Kumara Dissanayake on July 14 in his capacity as the Minister of Finance, Economic Stabilisation, and National Development, has granted tax exemptions under the Inland Revenue Act for a period of 35 years to four companies operating within the Colombo Port City.

All income, profits, and dividends distributed will be exempted from all taxes specified under this Act for the first twenty-five years and all payments made shall be exempted from the Withholding Tax specified under this Act for the first twenty-five years;

After the end of the aforesaid twenty-five year period, 50 percent incentive from the prevailing corporate tax rate specified under this Act will be given for a period of ten years

Ceylon Real Estate Holdings (Private) Limited (licensed on 03 May 2024), Clothespin Management and Development (Private) Limited (licensed on 28 March 2025), IFC Colombo (Private) Limited (licensed on 21 August 2024) and ICC Port City (Private) Limited (Licenced on 04 April 2025) were the companies that were eligible for tax relief.

These companies have been classified as “Authorised Persons” and “Businesses of Strategic Importance” and shall be entitled to long-term corporate income tax exemptions, VAT exemptions, customs duty exemptions, dividends tax exemptions, and exemptions of personal income tax for foreign employees.

This decision comes in direct disparity to Sri Lanka’s commitments under the IMF’s Extended Fund Facility (EFF), where the government agreed to suspend all new tax exemptions under the Port City and Strategic Development Projects (SDP) Acts until new, rules-based frameworks are introduced.

According to the IMF’s Fourth Review Staff Report (July 2025), the government has committed to not issuing additional exemptions under the outdated laws and bringing amendments to the Port City and SDP Acts to the House by October 2025 with the aim of enhancing transparency, accountability, and alignment with fiscal reform goals.

The IMF previously stated that discretionary tax relief had led to revenue losses, corruption risk, and investor mistrust, requiring the complete overhaul of exemption policy by appropriately set criteria and time limits.

Any backtracking, analysts further comment, would undermine world confidence and complicate Sri Lanka’s process of debt restructuring.

Sri Lanka has made a commitment to the IMF not to provide any tax exemptions or incentives or approving new projects under the Strategic Development Projects (SDP) Act and to refrain from exemptions under the Port City Act, between January and September 20, 2024.

Despite this assurance tax exemptions to 24 companies (four as Primary Businesses, three as Duty Free Businesses, and 17 as Secondary Businesses) were gazetted without consulting IMF staff, the present government has informed them via its Memorandum of Economic and Financial Policies released by the IMF on July 03.

The continuous structural bench mark of suspending tax exemptions will be removed in consultation with IMF staff upon successful amendments to the SDP and Port City Acts and regulations in September and October this year the government has pledged in its memorandum.

By: Staff Writer

November 03, Colombo (LNW): In a significant policy shift aimed at reducing reliance on the U.S. dollar, the Central Bank of Sri Lanka (CBSL) is advancing plans to introduce a direct renminbi (RMB) payment mechanism for trade with China. Governor Dr. Nandalal Weerasinghe said the move would modernise cross-border payment systems, lower transaction costs, and strengthen financial resilience in bilateral commerce.

At present, Sri Lankan importers convert rupees to U.S. dollars before settling payments in RMB, exposing them to multiple exchange-rate risks and higher processing fees. A direct RMB settlement pathway, Dr. Weerasinghe explained, would allow same-day transactions, eliminate intermediaries, and provide greater pricing stability for both importers and exporters.

To achieve this, the CBSL is exploring the establishment of a dedicated RMB clearing bank in Sri Lanka an offshore Chinese-authorised entity that would enable local banks and enterprises to open RMB accounts, settle payments directly, and conduct domestic RMB transactions without using foreign correspondent banks. Similar clearing facilities already operate in over 30 countries under Beijing’s global RMB expansion initiative.

The macroeconomic benefits could be considerable. According to the IMF, linking to an offshore RMB clearing bank can raise a nation’s share of RMB-settled transactions by up to six percentage points annually. For Sri Lanka struggling with constrained foreign exchange reserves and heavy import payments the move promises reduced dollar dependency, lower conversion costs, and improved reserve diversification.

China’s ambassador in Colombo has endorsed the initiative, noting that broader RMB use could support Sri Lanka’s recovery by mitigating foreign exchange volatility and boosting economic stability. Given that annual imports from China amount to several billion dollars, shifting part of that volume to RMB-denominated settlements would free U.S. dollar reserves for critical imports or debt obligations.

Dr. Weerasinghe also stressed that the system could attract more Chinese investors and exporters by providing smoother financial infrastructure and reinforcing trade confidence. However, he cautioned that the transition must be managed carefully to prevent over-reliance on China’s financial ecosystem.

Sri Lanka’s experience with a RMB 10 billion currency swap with the People’s Bank of China in 2021 highlighted both the opportunities and complexities of deepening financial ties with Beijing. A direct clearing mechanism could, in the long run, reduce the need for such emergency swap arrangements.

Ultimately, CBSL’s RMB settlement plan represents a bold step toward financial diversification and trade efficiency. If implemented with strong regulatory oversight and risk management, it could enhance Sri Lanka’s economic sovereignty while deepening strategic links with one of its largest trading partners.

By: Staff Writer

November 03, Colombo (LNW): Sri Lanka and the Netherlands are strengthening their century-old political and economic relationship, with both nations seeking to redefine cooperation as they approach the 75th anniversary of diplomatic ties in 2026. The second round of bilateral political consultations, held this week in The Hague, has underscored a new phase in this partnership one that blends historical reconciliation, maritime collaboration, and growing trade and tourism links with strategic geopolitical alignment.

The meeting was co-chaired by Dominique Kuhling, Director of the Asia and Oceania Department of the Netherlands’ Ministry of Foreign Affairs, and Sugeeshwara Gunaratna, Director-General of the Europe and North America Division at Sri Lanka’s Ministry of Foreign Affairs. Both delegations reaffirmed their commitment to shared values of democracy, maritime freedom, and cultural preservation key areas that now anchor bilateral ties.

At the forefront of discussions was the cultural heritage agenda, particularly the Netherlands’ ongoing effort to return colonial-era artefacts taken from Sri Lanka. Both sides hailed the active partnership between the National Archives of the Netherlands and the National Archives of Sri Lanka, which is engaged in conserving and digitising centuries-old Dutch-period documents. Officials described this process as a symbol of “healing historical legacies through cultural respect.”

Economically, the Netherlands remains one of Sri Lanka’s top ten tourism source markets and a key European trading partner. Discussions focused on expanding Dutch investments in tourism infrastructure, renewable energy, and port development, while encouraging collaboration between national chambers of commerce. The Sri Lankan delegation highlighted new investor incentives under the Board of Investment (BOI) and expressed readiness to deepen trade engagement with the Dutch private sector, particularly in logistics, shipping services, and sustainable agriculture.

Maritime collaboration emerged as a key strategic pillar. The Netherlands, known globally for its port engineering expertise, has been a long-term technical partner of the Sri Lanka Ports Authority (SLPA). Both parties agreed to strengthen cooperation in port development, coastal resilience, and maritime safety, aligning with Colombo’s ambition to position itself as the Indian Ocean’s logistics hub.

The consultations also addressed regional stability and security, with commitments to enhance cooperation within frameworks such as BIMSTEC and the Indian Ocean Rim Association (IORA). On the multilateral front, both sides discussed mutual support for candidacies within the United Nations system, reflecting their shared interest in a rules-based international order.

The meeting concluded with agreement to institutionalise these consultations at regular intervals to track progress. The Sri Lankan delegation included Ambassador Rekha Gunasekera, Dr. Nadeera Rupesinghe of the National Archives, and officials from the Ministry of Foreign Affairs. The Dutch side comprised senior foreign ministry officers overseeing Asian and cultural cooperation.

Analysts note that the renewed engagement between the two countries goes beyond ceremonial diplomacy. As Sri Lanka seeks post-crisis economic recovery, Dutch partnerships in trade, heritage restoration, and maritime technology could play a pivotal role in shaping a modern, resilient Sri Lanka–Netherlands relationship built on mutual respect and pragmatic cooperation