ECONOMYNEXT - Sri Lanka's credit to government from the banking system surged to 141 billion rupees in January 2017, in what could be an all-time high, while state enterprises also continued to borrow, though private credit slowed sharply, official data shows.
Private credit growth fell sharply to 17.9 billion rupees, down from 78.7 billion rupees a month earlier. Whether it is temporary crowding out due to large state borrowings or a more sustained trend is not clear.
Sri Lanka's central bank hiked rates last Friday by 25 basis points to 8.75 percent.
Twelve month private credit growth slowed to 20.9 percent from 21.9 percent.
Governor Indrajith Coomarswamy said credit growth of around 15 percent is expected in 2017.
Meanwhile credit to state enterprises continued its relentless rise, going up by 23 billion rupees in January, after going up 26 billion rupees in December.
Credit to SOEs began to expand from September 2016, as oil prices rose ending a trend of loan repayments.
New credit from the banking system to the government rose to 141 billion rupees in February, surpassing the 121 billion rupees seen in January 121, Central Bank data shows. The 2015 surge mostly involved the settlement of a foreign loan by the central bank.
In January it is customary for state borrowings to surge as arrears in tail end of the year are paid off. Successive administrations had put the brakes on year end spending in a bid to show lower budget deficits.
It is not clear whether the surge in credit is related to the policy debacle at the turn of the year, where tens of billions of rupees were printed to repay a bond.
If some of the bonds previously held by the public ended up in bank balance sheets as short term borrowings credit could rise.
However the printed money which surged from January 02 did not show up in the data, as the central bank had 'mopped up' most of the cash by the end of the month with sell-downs of its newly acquired Treasuries to minimize the damage to the exchange rate and inflation.
The central bank sold about 150 million dollars in forex markets (sales of 204.5 million dollars, and purchases of 64.66 million dollars, mopping up another 30 billion rupees and losing forex reserves.
From December 31 to January 31, central bank credit showed a contraction of 2.3 billion rupees. (Colombo/Jan27/2017).