Central Bank highlights strong demand rebound amid high import taxes
Colombo, May 23 — Sri Lanka has imported approximately $200 million worth of vehicles following the lifting of a multi-year import ban, Central Bank Governor Dr. Nandalal Weerasinghe announced this week. Speaking at a media briefing on May 21, the Governor also noted that banks have opened Letters of Credit (LCs) totaling $450 million for vehicle imports since restrictions were eased.
The surge in vehicle-related LCs underscores pent-up demand in the sector after Sri Lanka imposed a sweeping import ban in 2020 on over 3,000 items, including vehicles. The measure, introduced in response to a deepening currency crisis, was aimed at conserving foreign exchange amid inflationary pressures and an expanding fiscal deficit.
Despite high import taxes—vehicles remain one of the country’s top revenue generators—the reopening of the market has triggered a rapid rise in orders. The Governor highlighted that the long-standing ban was part of a broader economic strategy during a period of aggressive money printing and market interventions, which ultimately failed to avert a sovereign default.
Dr. Weerasinghe also warned of the fundamental economic principle that unless monetary expansion is controlled, increased imports in one area could lead to reductions in another—highlighting the risk of crowding out in the external sector.