FINANCIAL CHRONICLE – Sri Lanka’s implementation of a 50% surcharge on customs duties for vehicle imports has successfully curbed foreign currency outflows and reduced the demand for US dollars, according to Deputy Finance Minister Anil Jayantha Fernando.
Effective May 16, Sri Lanka introduced a temporary 50% surcharge on the Customs Import Duty for new personal vehicles, intended to limit imports and mitigate the depreciation of the national currency, the rupee.
Minister Fernando noted that the initiative is yielding positive results. “As of June 12, daily import expenditures on vehicles have decreased to $3.79 million,” he stated during a press briefing on Wednesday. This figure stands in stark contrast to over $5 million during the previous year and more than $7 million prior to the implementation of the surcharge, he added.
He explained that the heightened demand for vehicles was largely fueled by speculation and anxiety, despite the surcharge being in place. Following the announcement of the surcharge, importers initiated letters of credit totaling $88 million in just one day.
In early 2025, Sri Lanka lifted a five-year ban on automotive imports, unleashing a wave of pent-up consumer demand that placed immense pressure on the country’s recovering balance of payments.
After the restrictions were eased, there was a substantial increase in automotive orders, leading to foreign exchange outflows for motor vehicles reaching a staggering $613 million in the first quarter of 2026 alone, which further escalated to a total of $821 million by April.
This relentless outflow of dollars, averaging nearly $200 million each month, significantly widened the merchandise trade deficit to $3.7 billion during the first four months of the year.
Finance Ministry officials reported that vehicle imports have resulted in a depletion of $3.3 billion in foreign exchange since the ban was lifted in January of the previous year.
The concentrated demand for foreign currency severely destabilized the rupee, causing it to depreciate by 4.5% against the US dollar by mid-May 2026, prior to the introduction of the surcharge on vehicle import duties.
The weakening of the currency created a troubling economic chain reaction, triggering imported inflation for essential goods, increasing debt-servicing pressures under the fragile restructuring plan backed by the IMF, and driving up the national import costs for refined petroleum to support the newly imported vehicles.
To counteract the currency’s decline and maintain external sector stability, the government was compelled to take decisive action, with the Central Bank depleting a net $211.3 million in reserves in May to defend the currency. (Colombo/June 17/2026)
