Used cars turn to gold as Sri Lanka’s economy skids

The government has tried to prevent foreign currencies from leaving the country with a sweeping import ban, including on new vehicles, but US dollars continue to flow out of the country, which is struggling to get supplies of essential goods.

  • By Amal Jayasinghe / AFP, COLOMBO

Supermarket shelves are empty and restaurants can’t serve meals, but Sri Lanka’s economic crisis is a boon for used car dealers, with a shortage of vehicles pushing prices higher than a house in a nice neighborhood.

The island nation of 22 million is on the brink of bankruptcy, inflation is searing and the government has banned a series of ‘non-essential’ imports to save US dollars needed to buy food, medicine and fuel.

In the vehicle market, the two-year ban has kept factory-new cars off local roads, forcing desperate buyers to pay some of the highest prices in the world for battered compacts and no-frills family sedans. .

Photo: AFP

Anthony Fernando spent a recent weekend browsing sales lots in suburban Colombo on behalf of his daughter, who has been trying to find an affordable set of wheels for nearly a year.

“She thought the prices would go down,” but now she’s “paying to procrastinate,” the 63-year-old said.

The prices went “beyond the reach of an ordinary person”, he said.

Photo: AFP

A five-year-old Toyota Land Cruiser was being offered online for 62.5 million rupees (US$309,654) – triple the pre-ban rate, and enough to buy a house in a middle-class area of ​​Colombo or a new luxury apartment downtown.

A ten-year-old five-seater Fiat with a failed engine that could be stripped for parts elsewhere was listed at US$8,250, more than twice the average annual income in Sri Lanka.

“A car and a house are symbols of success,” said smiling Sarath Yapa Bandara, owner of one of the capital’s biggest car dealerships. “That’s why most people are willing to buy even at these high prices.”

‘OUT OF THIS WORLD’

Owning a vehicle remains a virtual necessity on the congested streets of Colombo, where a ramshackle bus and train network was already struggling with overcrowding.

The number of taxis has also fallen sharply, with drivers selling their taxis to take advantage of sky-high prices, and those still working are charging double their old fares or more.

“You have to have your own car,” said Udaya Hegoda Arachchi, another buyer about to bite the bullet at a dealership.

“We can’t expect prices to come down anytime soon, given the country’s economic situation,” he said.

COVID-19 has thrown Sri Lanka into a tailspin, drying up the most important income from tourism and foreign remittances.

In March 2020, the government implemented a sweeping import ban, including on new vehicles, to prevent foreign currency from leaving the country.

However, the policy was unable to stem the outflow of US dollars and instead left the country struggling to stock up on essential goods.

Food retailers have rationed rice, restaurants have closed because they can’t find cooking gas, while cash-strapped electric utilities unable to afford kerosene have imposed blackouts. ‘electricity. Farmers even ran out of fertilizer.

CHINESE DEBT

Rating agencies have warned that Sri Lanka could soon default, despite the government pledging to meet its commitments.

She is trying to renegotiate her Chinese debts with Beijing.

The import ban has also led to a shortage of vehicle parts, meaning drivers risk being stranded after a breakdown.

Ravi Ekanayake said his Colombo repair garage was doing a roaring trade from owners unable to afford the astronomical costs of switching to a new vehicle.

“But coins are rare. It’s a trap: either you get caught with an old car with no parts or you don’t have the money to buy a new car,” he said.

JB Securities managing director and financial analyst Murtaza Jafferjee said the prices also highlight a problem caused by excessive money printing by a cash-strapped central bank, with “too much money for too few goods”.

Prices have also raised transport costs and added to inflation, which hit a record 14% last month, he said.

“When vehicles become unaffordable for part of society, their activities will be limited. Then we will also see a loss of economic output,” Jafferjee said. “We are on the verge of collapse and few people understand the depth of the problem.”

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