Lankans continue to splurge; loans to manufacturing, agriculture take back seat

Sri Lankans have mostly borrowed for consumption but borrowings for manufacturing and agriculture come at distant fourth and fifth positions, demonstrating the country’s increasing tilt toward a consumption economy at the expense of industrialization and food security—the key ingredients for a sustainable economy.

An analysis of the total outstanding loans in the banking sector showed that 20 percent of the loans have gone into the consumption sector and is growing.

Loans to the consumption sector is closely followed by the loans to the construction and wholesale and retail sectors as the latter two sectors have absorbed 16 percent and 15 percent of the total loans outstanding. The manufacturing sector has absorbed little under 11 percent of the total banking sector loans – about half of the consumption sector loans – while agriculture, forestry and fishing has absorbed only 8.4 percent of the total loans. By end-march, Sri Lanka’s banking sector had Rs.6.7 trillion of loans and advances outstanding.

The lopsided distribution of loans mirrors the deep structural issue in the Sri Lankan economy since it was liberalized in 1977 – as it got used to consuming way more than what it grew and produced at home. An economy absent of a solid agriculture and an industrial base is highly fragile and susceptible to the global market volatilities as such a country is often at the mercy of imports.

Such a consumption-oriented economy no longer generates jobs to its people and thus they either migrate or drive threewheelers.