While Sri Lanka’s private sector credit expanded by Rs 169.0 billion (b) in July 2026, State sector credit contracted by Rs 189.6 b during the same month, First Capital Research’s Monthly economic report for September said.
“Private sector credit increased by Rs 169.0 b in Jul-26, while credit to the public sector decreased by Rs 189.6 b for the same period,” the report said, adding that the month-on-month expansion in the month within private credit was a 1.5% increase, the year-on-year a 26.4% increase, and the year-to-date increase was 12.1%.
According to the report, in the month of August; 3-month T-bill yields dropped by 100 bps between March of 2026 and August 2026, from 10.05% to 9.05% – while long-end yields declined by only 15-20 bps, indicating a significant flattening of the curve.
It noted: “The secondary market commenced August on a relatively stable footing, with modest buying interest supporting a marginal decline in yields. The third week saw modest buying at the long end, driving yields lower by around 10-15bps, with the rest of the curve remaining broadly unchanged.”
In August, Finance Minister Anil Jayantha Fernando addressing Parliament said that the Government plans to rely primarily on domestic financing, covering 85-90% of annual gross borrowing needs through local instruments like Treasury bonds and bills, while limiting foreign commercial debt by 2030.
During 1H 2026,, the CBSL’s holdings of Government securities dropped marginally, reaching Rs 2,498.1 b by end-June from Rs 2,508.9 b at end-2025 – due to Treasury Bond maturities, according to the CBSL.
CBSL noted that the holdings reflected the restructuring of the CBSL’s past lending to the Government. It said it had not acquired any new Government securities since January 2024 and, accordingly, no permanent liquidity injections were undertaken through the creation of domestic assets during this period.
Foreign holdings of local Government securities climbed to Rs 210.6 b by early September, up from approximately Rs 176.5 b in mid-July, marking a 19% increase over seven weeks. By late August, foreign holdings had risen to Rs 192.86 b, extending a steady upward trend.