Sri Lanka bank borrowings by the state soar up to June, CB credit up 30-pct, SOEs up 38-pct
ECONOMYNEXT – Sri Lanka’s state brrowings from the banking system rose to 1,673 billion rupees in June 2015, up 21.5 percent from a year earlier, with central bank credit soaring 30 percent to 186.7 billion rupees, official data show.
Credit to state enterprises were up 38.2 percent to 482 billion rupees, from a year earlier.
The state started borrowing heavily from the banking system after a budget deficit expanded with state salary hikes and deceptive subsidies in January 2015, which was not followed up with a rate hike.
Rates were kept down with printed money or Central Bank credit. Sri Lanka has a policy rate corridor, where overnight rates should go to 7.5 percent when excess liquidity runs out, but market interest rate rises were blocked with liquidity release and later outright Treasury bill purchases.
Central Bank credit, or printed money soaring 30.8 percent to 186.7 billion rupees in June from a year earlier.
Printed money the most dangerous type of credit, which causes imbalances in the credit system and triggers a balance of payments crises and inflation.
Analysts say Central Bank credit to the banking system is understated during the current balance of payments crises, due to accounting conventions.
Though large volumes of liquidity, partially sterilized with borrowed securities under term repurchase deals were released to the banking system, they do not turn up as central bank credit to the state in the same way deals involving outright transactions of government securities appear.
Credit to the private sector was also up 20.1 percent to 2,722 billion rupees in June from a year earlier. Credit to private sector was up 51 billion rupees from a month earlier.
Though analysts have been warning about rising private credit, though private borrowers cannot cause any real damage as they are net savers. The damage comes from credit to state and SOEs, who are net spenders.
In the month of June itself, state borrowings from the domestic banking system eased somewhat with a 650 million dollars sovereign bond.
With oil prices falling and good rains, analysts say energy SOE’s should not be very cash negative. Cashflows of key energy SOE’s were generally positive in 2014. In June SOE’s paid back 14.3 billion rupees. (Colombo/Sept07/2015 – Update II 0-corrected opening para . Sri Lanka’s state brrowings from the banking system rose to 1,673 billion rupees in June 2015, up 21.5 percent from a year earlier, with central bank credit soaring 30 percent to 186.7 billion rupees, official data show.)