ECONOMYNEXT – Sri Lanka’s private credit hit a new record of 226.8 billion rupees in August 2025, up from 201.5 billion rupees a month earlier, taking the total so in 2025 to 1,128 billion rupees, while credit to government fell, official data shows.
Sri Lanka’s central bank has provided monetary stability as it missed an inflation target, allowing people – including many who were starving and forced to skip meals after macroeconomists steeply depreciated the currency in 2022 destroying real wages – to slowly to pick up their lives, buying goods and allowing demand to recover and giving confidence for businesses to invest.
The cost of building
The private credit number only exceeded 226 billion rupees level in March 2022 when the macro-economists busted the currency in a ‘float’ failed by a surrender rule, bloating outstanding dollar debt and working capital needs.
Vehicle imports are also picking up now, driving up credit. Many people are taking loans to pay taxes to the state, amid extraordinarily high levies for vehicles, including for motorcycles.
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After deploying open market operations against the people in 2020, macro-economists banned car imports, hitting tax revenues in what analysts call a ‘cascading policy error’, often seen after rate cuts during earlier currency crises.
Banks also have credit lines to finance companies, and it is not clear whether those are also being activated, helping drive up private credit.
Credit to private sector grew to 9,284 billion rupees up to August, up 20.5 percent from a year ago, with domestic banking unit credit up 21.9 percent to 8,688.3 billion rupees and overseas banking units up 3 percent to, 608.5 billion rupees.
Net credit to government from commercial banks fell 165 billion rupees in August 2025, to 6,519 billion rupees.
For the month of August 2025 the government ran an overall budget surplus of around 145 billion rupees, data show.
In the year to August net credit to government grew only 4 percent.
With no inflation, current spending can also be kept under control and nominal interest rates can also eventually fall as long as the central bank does not cut rates artificially with inflationary open market operations or depreciates the currency for wanton inflationism, destroying savings and capital of the nation, analysts say.
There has been insidious depreciation in recent months amid record external current account surpluses, for reasons that are not clear, but probably to meet the controversial inflation floor of the central bank which will push up the cost of living, state expenditure and can help fire new social unrest.
There have been calls for the parliament to impose an inflation ceiling on the central bank to de-risk the economy from aggravated inflationism and prevent a second default that usually happens to countries that default the first time unless sound money is restored.
Credit to state enterprises grew 14.2 billion rupees, after falling 33 billion rupees in the previous month.
By debasing money through insidious depreciation, inflationist macro-economists can also push up costs of state energy enterprises put pressure on their balance sheets, eventually raising selling prices and pressure especially incomes of families, especially in marginal income brackets. (Colombo/Oct11/2025)