A sharp increase in consumer borrowing is drawing attention from economists who warn that Sri Lanka’s economic recovery could face new risks if rising credit-fuelled spending continues to drive demand for imported goods.
Recent research led by Professor Wasantha Athukorala highlights an extraordinary expansion in loans used to finance consumer durable purchases. Between December 2024 and March 2026, lending for durable goods jumped by 213 percent, increasing from Rs. 40 billion to Rs. 123 billion.
Consumer durable loans typically fund purchases such as motor vehicles, household appliances, furniture, and electronic equipment. While rising demand for such products often signals improved consumer confidence, economists caution that many of these goods are imported, creating additional pressure on foreign exchange reserves.
Professor Athukorala argues that the trend reflects a growing dependence on credit-financed consumption rather than savings-based spending. As households borrow more to purchase imported products, demand for foreign currency rises, potentially undermining efforts to strengthen external sector stability.
The surge in durable goods financing forms part of a broader expansion in personal borrowing. Total personal loans increased by Rs. 635 billion during the fifteen-month period, reaching Rs. 2.45 trillion by March 2026. The figures suggest that consumers are relying increasingly on borrowed funds for both everyday expenditure and major purchases.
Credit card usage also expanded during the period. Outstanding balances rose from Rs. 168 billion to Rs. 197 billion, reinforcing evidence of growing consumer spending supported by debt.
At the same time, another trend has emerged. Pawning advances exceeded Rs. 1 trillion, indicating that many households are continuing to seek liquidity through gold-backed loans. Analysts say the simultaneous growth of consumer spending and pawning activity presents a mixed picture of financial wellbeing.
While stronger consumption may support economic activity and retail sector growth in the short term, it also raises questions about the sustainability of household finances. Increasing reliance on debt can create vulnerabilities if income growth fails to keep pace with repayment obligations.
One of the more striking findings in the research is the decline in educational borrowing. Loans obtained for education purposes fell by nearly 60 percent during the same period, suggesting a shift in household priorities away from long-term investment in skills and human capital.
Economists view this development with concern, arguing that productive investment is essential for sustainable economic growth. Consumption can stimulate demand temporarily, but education and skills development generate longer-term economic benefits.
The data suggest that consumer demand is recovering faster than investment-oriented spending. While this may provide short-term momentum for economic growth, policymakers remain wary of the potential impact on imports and foreign exchange reserves.
As Sri Lanka continues its post-crisis recovery, authorities will be monitoring whether rising consumer credit contributes to sustainable economic expansion or creates new vulnerabilities in an economy that remains sensitive to external financial pressures.