Sri Lanka banks on IMF loan amid soaring car imports

Sri Lanka’s central bank is relying on a $350 million loan tranche from the International Monetary Fund to boost foreign reserves, as the country faces higher-than-expected vehicle imports since a five-year ban was lifted in February. 

Central Bank Governor Nandalal Weerasinghe said the sixth installment of a $2.9 billion, four-year IMF bailout agreed in early 2023 is expected soon, with total inflows, including other funding, projected at around $750 million next month.

The surge in car imports has cost roughly $1.2 billion between February and September, far exceeding initial projections, though Weerasinghe noted that demand has eased since July and import levels are expected to stabilize next year.

Following Sri Lanka’s historic default on $46 billion of external debt in 2022, the IMF bailout included economic reforms and austerity measures. The rupee has depreciated by five percent against the US dollar this year, while inflation is expected to rise to 5 percent by year-end from 2.1 percent in October.

The IMF has announced a staff-level agreement for the next loan release, pending board approval, and forecasts continued strong growth, partly supported by vehicle import taxes. However, the World Bank has cautioned that the country’s recovery remains uneven, with many households still struggling to recover from the 2022 economic crisis.