Sri Lanka is expecting a $350 million loan installment from the IMF to support its foreign reserves, following a sharp rise in vehicle imports since a five-year ban was lifted in February. The central bank is relying on this funding to stabilize the economy.
Governor Nandalal Weerasinghe said the country hopes to receive the sixth tranche of a $2.9 billion, four-year bailout agreed in early 2023. With IMF support and other funding sources, the central bank anticipates an inflow of around $750 million next month.
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Vehicle imports have surged significantly since the ban was lifted, with about $1.2 billion spent between February and September. Officials noted that this exceeded expectations, though demand has been easing since July and is expected to decline next year.
The government initially imposed strict import restrictions in 2020 due to dwindling foreign exchange reserves. Lifting the vehicle ban triggered a spending spree among citizens, boosting import-related revenues but also increasing pressure on the balance of payments.
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Sri Lanka defaulted on its $46 billion external debt in 2022, prompting negotiations for a bailout subject to IMF-approved economic reforms. The rupee has depreciated five percent against the US dollar this year, while inflation is projected to rise to 5 percent by year-end.
The IMF recently reached a staff-level agreement to release the next installment, pending board approval. While the fund expects continued growth and improved revenue from vehicle taxes, the World Bank warns the recovery remains uneven and many households still struggle to regain lost livelihoods.