Treasury overflows: rupees earned, dollars spent, time to rationalise vehicle imports

In his 2026 Budget Speech, President Anura Kumara Dissanayake painted an optimistic picture of the economy, citing the steady recovery of state revenue and the restoration of macroeconomic stability. Yet, he did so with a cautious approach.
He highlighted that government revenue would be 16 per cent of the GDP (Gross Domestic Product), thanks to improved tax collection and a broadening of the revenue base. Tax revenue from vehicle imports contributed to the state coffers.
Vehicle imports, once a major source of customs revenue, were suspended in 2020 amid the balance-of-payments crisis. At the time, the measure was unavoidable. With foreign reserves plummeting to less than US$1 billion in 2022 and international credit lines drying up, curtailing non-essential imports was a survival strategy for the then-rulers.
Now, the situation has improved. The Central Bank reported that gross official reserves stood above US$6 billion at the end of June 2025, supported by inflows from multilateral agencies, remittances, and the phased restructuring of external debt. According to the President, the letters of credit had been opened for vehicle imports valued at US$1.9 billion by September 30, 2025. Besides, US$1.3 billion had already been spent by that time for vehicle imports.
On the surface, these numbers about revenue look attractive to a cash-strapped Treasury, which received revenue in terms of import taxes. But the story is not that simple. Every imported vehicle represents a demand on the country’s scarce foreign currency resources. In vehicle imports, the Treasury earns in rupees and spends dollars. It is a business to be done cautiously, as otherwise it will strain reserves once again.
Vehicle imports create heavy pressure on the current account. The government, in the implementation of its budgetary proposals, now has a challenge — to manage the situation with rationalisation, rather than liberalisation.
In this case, a rational import policy would begin by classifying vehicles based on necessity and economic contribution. Imports essential to public transport, logistics, and emergency services should receive priority. There has to be a criterion for private vehicle imports.
Equally important is the need to discourage luxury and high-emission vehicles that add little value to the productive economy but consume significant foreign exchange. Tax incentives can instead be directed toward electric and hybrid vehicles, which reduce fuel imports over time.
During the past year, the government remained tempted to rely on such import-based taxes. It was under compulsion to achieve revenue targets stipulated by the IMF. Yet, it is revenue generated only with dollar spending. 
It is important for the government to focus on economic recovery driven by export expansion, investment, and productivity growth. It is something lasting whereas a recovery driven by import consumption is unsustainable. 
“As an economy heavily dependent on imports, Sri Lanka remains vulnerable to global shocks. Therefore, we expect to build a production economy. We are currently working to provide targeted subsidies, necessary technology and market access to our Small and Medium-sized Enterprises (SMEs) to manufacture the goods locally that are currently imported. We are also focusing on increasing the participation of the private sector in large-scale production and in adding value to local products. For this, we expect to invest in the necessary infrastructure and utilise PPPs for human resource development,” the President himself said in the budget speech.
In the import of vehicles, passenger transportation should be a key area of priority. Today, buses that ply our roads are not passenger-friendly. Public transportation is way below international standards.
In the rationalisation of vehicle imports, the development of the public transport system should be borne in mind. With the development of a modern transport system, people can be discouraged from using their private cars in daily commutes. 
The President appeared to be awake to the reality regarding foreign exchange reserves. That is why he struck a note of caution regarding vehicle imports. He implied that the vehicle market had now saturated, with no further requirement for such high foreign exchange spending next year. 
All in all, Sri Lanka’s gradual re-entry into the vehicle market must be guided by prudence, not populism. The President’s cautious tone in the budget reflects an understanding that macroeconomic stability remains fragile despite fiscal gains. A surge in vehicle imports may temporarily swell government revenue, but it risks draining the very reserves that anchor economic recovery. Rationalisation—through prioritising essential vehicles, promoting electric mobility, and improving public transport—is the only viable path forward.