• Acknowledges economic boost from lifting ban, but warns of increased demand for forex impacting reserves
• IMF Senior Mission Chief for Sri Lanka Peter Breuer says reserves have improved significantly reaching approximately half of the target level
• Asserts CBSL must balance reserve management with exchange rate flexibility
• Opines import duties may affect local vehicle assembly, but impact remains uncertain

International Monetary Fund (IMF) Senior Mission Chief for Sri Lanka Peter Breuer yesterday highlighted the delicate balancing act the country faces, as it reopens vehicle imports, which will provide a boost to consumer spending and business activity, while also risking exacerbating the trade deficit.

He stated that reopening the vehicle imports would increase demand for dollars, whilst stressing that the country’s reserves have improved significantly under the ongoing bailout program.

“Allowing vehicle imports will naturally increase demand for foreign exchange, potentially affecting reserves. However, Sri Lanka’s foreign reserves have strengthened significantly under the program, reaching approximately half of the target level,” he said responding to queries posed during a virtual media briefing.

Breuer emphasised that the Central Bank would need to carefully manage reserves while maintaining exchange rate flexibility.

“The key question is whether the Central Bank will provide reserves or let the exchange rate adjust naturally,” he said.

He noted that reintroducing import duties could influence local manufacturing, but said it was too early to determine the exact impact.

“After five years of import bans, there will likely be demand for finished vehicles from overseas. It is also possible that domestic assembly will increase,” he added.