Panic Grips Car Import Market as Treasury Warns of Forex Risk

Uncertainty has gripped Sri Lanka’s car import market amid speculation that vehicle imports may soon be suspended again, following a strong warning from the Treasury to the Central Bank.

Treasury officials have raised concerns that the rapid rise in vehicle imports since the ban was lifted in February could have a severe impact on the country’s foreign reserves. In just five months, Letters of Credit (LCs) amounting to USD 742 million have been opened — fast approaching the unofficial ceiling of USD 1 billion that the government had anticipated for the year.

According to a senior Treasury source, the current pace of import spending is “well beyond what was forecast,” and could undermine the country’s exchange rate, fuel imports, and overall economic stability. The Treasury has urged the Central Bank to closely monitor import trends and consider pre-emptive measures.

Importers Caught in Confusion

Car importers across the country are reacting with alarm. Dealers in Nugegoda, Negombo, and Kandy say they have noticed a sudden spike in buyers rushing to complete transactions, fearing that the government may impose another freeze on imports without warning.

“We're hearing that restrictions could return any time,” said one auto dealer in Gampaha. “If that happens, we’ll be stuck with high-priced stock and no buyers. We’ve been here before.”

Imports Booming, But at What Cost?

Since the vehicle import ban was lifted in February, more than 18,000 vehicles have been brought into the country, according to Sri Lanka Customs. Customs Spokesman Seevali Arukgoda confirmed that vehicle-related duties alone have generated Rs. 220 billion in revenue, contributing significantly to the year’s tax collection target of Rs. 2.1 trillion.

Total customs revenue for 2025 has already exceeded Rs. 1 trillion, with vehicle taxes playing a major role.

However, Treasury officials argue that the revenue windfall comes with a serious downside: an unsustainable outflow of US dollars. They warn this could lead to renewed pressure on the rupee and even shortages of essentials like fuel and medicines if dollar reserves are depleted too quickly.

Policy Response Under Review

While the Central Bank has not issued any public statement, discussions are reportedly ongoing behind closed doors. Options under consideration include stricter LC approvals, revised tax structures, or a fresh limit on the types of vehicles that can be brought in.

Analysts say the next few weeks will be critical as Sri Lanka balances the need for tax revenue with the risk of a foreign exchange crunch.

Long-Term Questions Remain

The current wave of car imports reflects pent-up demand after nearly three years of restrictions. However, many in the industry warn that inconsistent policy — swinging between open imports and blanket bans — is hurting both importers and long-term economic planning.

“We need a stable policy, not sudden reversals,” said an industry insider. “If they want to protect reserves, do it with a long-term strategy, not panic reactions.”

For now, the market remains tense. With over USD 740 million already committed to vehicle imports, and uncertainty about how the government will respond, car buyers and importers alike are bracing for what could come next.