Sri Lanka Lifts Vehicle Import Ban After Four Years

Sri Lanka Lifts Vehicle Import Ban: For the first time in four years, Sri Lanka has lifted its vehicle import ban, which was imposed in 2020 to alleviate the strain on the country’s foreign exchange reserves due to the COVID-19 pandemic. This policy change, announced through a gazette on Wednesday, allows the importation of public transport vehicles, a move welcomed by the vehicle importers' association.

The Ministry of Finance had originally enforced the ban to ease the pressure on the island’s foreign reserves, which were severely impacted by the pandemic and the economic downturn in 2022. The country’s foreign exchange crisis led to a shortage of essential goods, including fuel, resulting in an unprecedented economic collapse.

President Anura Kumara Dissanayake addressed Parliament on Wednesday, confirming that the importation of cars for private use will be allowed starting February 2025. However, this decision comes with strict regulations aimed at safeguarding Sri Lanka’s foreign reserves.

Under the new rules, all importers are required to sell their imported vehicles within three months. If they fail to do so, a 3% fee will be levied. The government has implemented these conditions to prevent the excessive importation and stockpiling of vehicles, which could further drain the country’s foreign reserves.

The lifting of the import ban has been widely praised by the vehicle importers' association, which had been lobbying the government for years. The decision aligns with the International Monetary Fund (IMF) bailout conditions, which require Sri Lanka to rebuild its foreign exchange reserves to avoid another crisis similar to the one faced in 2022.

As part of the IMF's recognition of Sri Lanka’s recovery efforts, the organization has allowed vehicle imports to increase state revenue through import duties, helping the country stabilize its economy.

In 2022, Sri Lanka experienced a historic economic crisis, leading to its first-ever sovereign default. The lifting of the vehicle import ban marks a significant step toward economic recovery for the island nation.

Until 1977, vehicle ownership in Sri Lanka was limited to the country's elite, as car production was minimal and imports were nonexistent. However, the liberalization of the economy in 1977 marked a turning point, opening the doors to vehicle imports. The influx began with Japanese vehicles and soon expanded to include a variety of new and used cars from other nations. In 1970, Sri Lanka had just 208,026 cars on the road (A Brief History of Modern Transportation in Sri Lanka, 2016). By 2019, this number had surged to a staggering 8,095,224 vehicles (Department of Motor Traffic, 2019), with more than 25 foreign vehicle brands in circulation. Despite motor vehicles accounting for only 4% of the total imports (Jabir, 2023), the country faced an annual foreign exchange outflow of USD 1.25-2 billion (Central Bank of Sri Lanka, 2023) to import these vehicles.