By: Staff Writer
November 30, Colombo (LNW): Sri Lanka appears to be regaining economic confidence, as a recent surge in private-sector credit and stable foreign currency inflows point toward sustained growth momentum and improved external stability. According to central bank data, private-sector credit expanded by a staggering Rs 1,365 billion during the first nine months of 2025 underscoring renewed domestic demand and business activity.
At the same time, foreign exchange reserves have remained resilient. The Central Bank of Sri Lanka (CBSL) confirmed that gross official reserves stayed above US $6 billion throughout the year.
The bank also signalled that additional inflows expected in December notably from the International Monetary Fund (IMF) and the Asian Development Bank (ADB) could push total reserves beyond US $7 billion by year-end.
Foreign-exchange inflows this year have been robust, driven by tourism, remittances, and export conversions. For the first half of 2025, services-sector inflows including tourism and remittances reached about US $2.1 billion, while total remittances surged nearly 19% year-on-year to US $3.7 billion.
These inflows helped offset widening trade deficits caused by rising imports.However, rising imports especially the revival of vehicle imports are testing those gains. By August 2025, the forex cost of vehicle imports had reached US $917 million, reflecting heightened consumer demand and increased credit-driven car-buying.
The trend has contributed to a broader import bill that outpaced export growth, widening the merchandise trade deficit.
Industry watchers caution that the credit boom — while a positive sign for economic activity — carries risks if not carefully managed. Elevated private-credit growth can fuel inflation or lead to non-performing loans, especially if global headwinds disrupt foreign-exchange inflows.
Still, the combination of domestic credit expansion and healthy foreign-exchange earnings has helped stabilise the rupee and narrow the bid-ask spread in foreign-exchange markets. CBSL’s active purchasing of foreign currency from the domestic market has bolstered liquidity, even as banks and finance companies absorb debt servicing pressures.
With the anticipated IMF and ADB disbursements expected before year-end, along with seasonal remittances and tourism receipts, many analysts now believe Sri Lanka may close 2025 with its highest foreign-reserve levels since the 2022 crisis.
This in turn could provide the breathing room needed to support economic growth of about 4.5% for the year, while allowing policymakers to build monetary and fiscal cushions ahead of potential global shocks.
If managed prudently, the current confluence of domestic demand, credit expansion and foreign-exchange resilience could mark a turning point — transforming the economic rebound into a more durable recovery.
