Sri Lanka’s private sector credit saw a notable expansion of 146 billion rupees during the first half of 2024, according to official data. This growth contrasts with a reduction in credit extended to the government, although government credit continued to surpass private sector lending.
In the six months leading up to June 2024, commercial bank credit to the government rose by 354 billion rupees, a decrease from the 1,043 billion rupees recorded in the same period the previous year. This reduction partly reflects the 517 billion rupees allocated for the restructuring of state-owned enterprise (SOE) debt.
Overall government and SOE debt increased by 293 billion rupees in the first half of 2024, down from 405 billion rupees a year earlier. Notably, credit to state enterprises fell by 60 billion rupees during this period.
The growth in private credit has been supported by the appreciation of the rupee and improved monetary stability. Over the past 12 months, private sector credit has expanded by 432 billion rupees. This is a turnaround from the period from June 2022 to May 2023, when private credit contracted by 733 billion rupees due to companies de-leveraging amidst a currency crisis and the end of inflationary policies.
As companies that have emerged from this de-leveraging phase become more efficient and resilient, they are positioned for growth if stable economic conditions persist.