Hullabaloo over vehicle imports and pressure on Rupee

In the backdrop of the Sri Lankan Rupee (LKR) undergoing a considerable depreciation since last March, there has been an extensive discussion about vehicle imports, and some have rather unfairly attributed the downward movement of the local currency to the rise in vehicle imports.

In a move aimed at reducing the pressure on foreign reserves, a special gazette notification was issued on May 15, announcing a 50% surcharge on customs import duties applicable to vehicles imported into Sri Lanka from 16 May onwards. While the surcharge will be levied for a period of three months, the gazette further mentioned that the new 50% surcharge would not apply to vehicles for which Letters of Credit (LC) had been opened on or before 15 May.

However, when the unusually high number of LCs that were opened on days leading up to 15 May are observed, it becomes apparent that the decision to impose the surcharge had been leaked to some influential vehicle importing companies about a week before the gazette was issued. Backed by credible evidence, there is widespread acceptance that the contentious LCs were issued by banks in favour of firms, the top decision makers of which have close ties to the Government. According to the Finance Ministry, the value of the LCs that were issued on 15 May was $ 23 million, a substantial rise from the value of LCs that were opened a week earlier—$ 2.6 million. Although the Government wanted to strengthen Rupee by the duty hike, speculation and rumours regarding the imposition of the surcharge led to importers rushing to open LCs, causing the currency to further decline due to the panicking and chaotic response of vehicle importers.

The Government views the rise in vehicle imports as one of the prime causes for the weakening of the rupee. The sentiment has also been echoed by Central Bank Governor Nandalal Weerasinghe as well. He claimed approximately $ 600 million was spent on vehicle imports during the first quarter while emphasising that the accelerated import trend could push the annual bill to $ 2.4 billion, exceeding the $ 2 billion spent over the previous year. Nevertheless, few sceptics have disagreed with this assessment. Even Sri Lanka Customs, set a revenue target of Rs. 266 billion from vehicle import taxes for this year – 69.4% less than last year - as it anticipates a significant decline in vehicle imports 

According to JB Securities – a noted stock broking firm - monthly vehicle imports have shown a clear slowdown this year, particularly in personal vehicles, with imports declining from a peak of $ 240.9 million in December 2025 to $ 148.4 million in February 2026. Commercial vehicle imports too have slowed down, dropping from $ 60.2 million in December 2025 to $ 45.2 million last February. The contraction in vehicle imports had been recognised by the stock broking firm as a key factor enabling the economy to register a current account surplus in February.

Independent analysts believe that it is the non-adjustment of local fuel prices in accordance with movements in the world market which has caused pressure on the LKR, not the alleged rise in vehicle imports. The expenditure on fuel imports increased by 74.7% year-on-year to $ 630 million in March 2026, due to rising oil prices caused by the ongoing war in the Middle East. The Government has acknowledged diesel is being subsidised by Rs. 100/litre and petrol by Rs. 20/litre.  

As we have pointed out earlier, subsiding fuel disproportionately favours the rich – a luxury our economy simply cannot afford – apart from causing unnecessary strain on the external sector. Cost-reflective pricing of fuel as well as electricity would result in less demand for key consumer items as the public would cut down on non-essential travelling besides excessive usage of electricity, leading to less fuel imports and reduced pressure on the currency.