ECONOMYNEXT – Sri Lanka’s decision to impose a 50% surcharge on customs import duty for vehicles has reduced foreign currency outflows and decreased demand for the U.S. currency, Deputy Finance Minister Anil Jayantha Fernando said.
Sri Lanka imposed a temporary 50% surcharge on Customs Import Duty on new personal vehicles for three months effective May 16, aiming to restrict imports and reduce the depreciation of the rupee currency.
Minister Fernando said the move is now bearing fruit.
“Import expenditure on vehicles per day has come down to US$3.79 as of June 12,” Fernando told reporters at a press briefing on Wednesday.
This amount was over US$5 million last year and over US$7 million before the Customs surcharge was imposed, he said.
“So it has an impact. Therefore, we say that we have taken the right decision. People also have realized that we need not to be unnecessarily be panic.”
He said the increased demand for vehicles was due to speculation and fear, even after the surcharge was imposed, adding that importers opened letters of credit worth US$88 million in one day following the surcharge decision.
Sri Lanka relaxed a five-year ban on automotive imports in early 2025, unleashing massive pent-up consumer demand, which transformed vehicle inflows into a critical strain on the country’s recovering balance of payments.
Following the easing of restrictions, a significant surge in automotive orders saw foreign exchange outflows for motor vehicles hit an astronomical US$ 613 million in the first quarter of 2026 alone, expanding further to reach a cumulative US$ 821 million by April.
This relentless dollar drain, averaging close to US$ 200 million monthly, directly led to widen the merchandise trade deficit to US$ 3.7 billion during the first four months of the year.
Finance Ministry officials say vehicle imports have drained US$3.3 billion since the ban was relaxed in January last year.
This concentrated demand for foreign exchange severely destabilized the currency, causing the Sri Lankan Rupee to depreciate by 4.5% against the US dollar by mid-May 2026, before the government imposed a surcharge on the customs import duty for vehicles.
The weakening currency sparked a dangerous economic domino effect, instantly triggering imported inflation across essential commodities, increasing debt-servicing strains under the nation’s fragile IMF-backed restructuring framework, and driving up the national import bill for refined petroleum to run the newly imported vehicles.
To arrest the currency’s slide and preserve external sector stability, the government was forced to pivot aggressively, with the Central Bank burning through a net US$ 211.3 million in reserves in May to defend the currency. (Colombo/June 17/2026)