Vehicle import expenditure rises with rupee depreciation

Sri Lanka’s expenditure on imports rose recently boosted by substantial imports of vehicles, and other commodities, suggesting domestic demand maybe picking up despite the triggering of economic hardship for the people from currency depreciation and inflation.

In April 2018, expenditure on imports increased to US$1,794 million from $1578.2 million registering a double- digit year- on- year growth, Central Bank statistics revealed.

Vehicle imports expenditure rose 180 per cent to $157.8 million in April 2018 from $ 56.3 million during the same month last year.

The country has spent $ 516.6 million for the imports of vehicles during the first four months of this year while the expenditure for vehicle imports during the same period was $ 248.2 million, an increase of 108.2 per cent.

Import expenditure on personal vehicles, categorised under consumer goods, contributed mainly to the overall growth in imports due to the substantial increase in imports of small engine capacity vehicles, hybrids and electric vehicles.

This was disclosed in the external sector performance report for the month of April released by the CB recently.

CB Governor Indrajit Co omar aswa my recently expressed his concern on the increase of vehicles at a time the monetary regulator is engaged in tackling the trade deficit and rupee depreciation.

The monetary authority is considering the option of taking macro- prudential measures if the demand for small vehicles continues despite high taxation.

Motor vehicles imports rose 117 per cent from a year ago to $ 121.5 million in February 2018, the latest trade data showed.

In the first two months vehicle imports rose 77.9 per cent to $208.8 million.

Car trading behaviour can be an important sign of a recovery in economic activity and credit as Sri Lanka emerges from a balance of payments crisis, triggered by a money printing CB in 2015.

In most advanced markets with high living standards, a second hand vehicle is the first large purchase a young person makes, ahead of the purchase of a house.

In Sri Lanka however cars are heavily taxed, though the elected ruling class gets tax free cars and their minions in state agencies get tax slashed cars.

However among the less affluent a motor cycle is the first significant purchase. In East Asia, wide ownership of scooters has empowered the female population and brought them into the workforce in droves.

Among craftsmen like masons, carpenters, plumbers and their helpers, three wheelers started to replace motorcycles when the new administration led a crackdown against their attempts to better themselves as the rupee came under pressure due to money printing.

Prices of imported vehicles have increased by at least 5 per cent due to the depreciation of the rupee, former president of the Vehicle Importers’ Association of Sri Lanka Indika Sampath Merenchige told the Business Times.

The continuous fall of the rupee has contributed to the price increase, he said adding that an average car price has increased by Rs. 50,000 to Rs. 70,000.

“The price of a Wagon R has shot up by around Rs.150, 000 while the price of an Axio has increased by almost Rs. 200,000,” he said.

The economic stability in the country is essential to stabilise the prices of vehicles, he added.