Sri Lanka's automobile market: Subliminal economic bubble?

From showrooms to sinking debt; is Sri Lanka repeating a global mistake?

- By ADHEEB ANWAR

ANY Sri Lankan commuter with reasonable observation skills will notice the influx of new vehicles in Colombo. The suffocating traffic is a simple indicator. This phenomenon was only bound to happen with the recent relaxation of import restrictions on vehicles. These restrictions were a recovery measure implemented by the Government for the economy to recover from Sri Lanka’s recent financial crisis. However, short lived was the excitement for the removal of such restrictions as the Government in January 2025, announced its exorbitantly high tax rates which were to be placed on imported vehicles. Taxes running as high as 300% slapped the common man into a reality which screamed that affording a new daily driver from their savings alone was impossible.

A healthy combination of subprime lending and adjustable rate mortgages (ARM) lent fodder to the 2008 financial crisis in the USA. Subprime lending was the controversial practice of approving loans for people with low creditworthiness, often with little or no income verification. ARMs on the other hand were housing mortgages with ultra-low interest rates which came with the caveat that such interest rates could differ depending on volatile market variables. This marriage was bound to fail when credit default (nonpayment) became the only reality for many Americans.

Hence, a crisis hungry housing bubble was formed subliminally, by an increased supply of ARMs to an expanding pool of unreliable debtors. An accumulation of such practices, lead to inevitable financial ruin. This crisis was well documented, researched and deconstructed over the years by leading economic analysts, with the Federal Reserve referring to this event as ‘The Great Recession’. To gain preliminary understanding of this saga, “The Big Short” is a recommendable movie which explains this in decent detail.