Who really wins from Sri Lanka’s vehicle loan boom?

Thursday, 13 November 2025 00:00 - - {{hitsCtrl.values.hits}}

The Central Bank’s latest report reveals that Rs. 1.16 trillion in vehicle-backed loans were issued in just the first six months of 2025—an astonishing 63% of total lending by Licensed Finance Companies. On the surface, this looks like a sign of recovery. Pent-up demand has finally been released after years of import restrictions. Government revenue has improved, and auto sector activity has revived.

But beneath this celebratory headline lies a troubling question:

Are we once again fuelling consumption with debt, instead of funding growth?

In the past, Sri Lanka’s foreign exchange crisis was triggered partly by excessive reliance on imported, non-productive consumption goods—vehicles being the most notable example. Now, scarce credit and foreign reserves are again being

funnelled into the same pattern.

From a national economic standpoint, the risks are clear:

nHigher foreign currency leakage — over $ 1.5 billion payments expected for vehicle imports this year

nWorsening trade deficit — more pressure on already fragile external stability

nReduced credit to productive sectors — exports, SMEs, local manufacturing pushed aside

nInflation and fuel demand spike — as more imported vehicles hit congested roads

nRising household debt burden — future consumption and financial resilience weakened

And what about the borrowers who are being tempted by easy leasing and promotional offers?

A vehicle is not an appreciating asset—it loses value every day, even from the time it is rolled out of a showroom. When loan instalments stretch beyond incomes, many families risk ending up with a depreciated vehicle and a very real debt. If a future depreciation of the rupee or interest rate hike occurs, that risk becomes even more severe.

So yes—government coffers are smiling today. But is this truly fiscal achievement if it is built on taxing imported cars, instead of growing our economy?

Sri Lanka cannot afford another cycle where debt-driven consumption is mistaken for development. If two-thirds of lending is going into vehicles rather than value-adding to productive enterprises, we are postponing progress—not advancing it.

It is time policymakers asked themselves a simple question:

Are we financing mobility—or mortgaging the future?

A Worried Mind - Moratuwa