ECONOMYNEXT – Sri Lanka’ credit to government from commercial banks had surged to 147.8 billion rupees in January 2020, up from 34.4 billion rupees a month earlier, amid a tax cuts, while private credit had remained flat, official data showed.
Credit to government from the banking system was 119.9 billion rupees in January 2020, with the central bank withdrawing 27.6 billion rupees of liquidity created in December.
If increases in government credit are matched by falls in private credit, and the central bank does not inject cash to keep rates down, there is perfect ‘crowding out’ and monetary stability is maintained.
Sri Lanka’s budget deficit is expected to expand to around 7.5 to 7.9 percent in 2020, after value added and other tax cuts.
Private credit was flat growing only 0.3 billion rupees to 5,798 billion rupees, with December data being revised down.
Credit to state enterprises grew 2 billion rupees to 820 billion rupees.
Credit to state enterprises had been rising partly due to losses at Ceylon Electricity Board and Ceylon Petroleum Corporation amid higher oil prices and expanded generation of thermal power.
Oil prices have collapsed in March, which may help the finances of Ceylon Petroleum Corporation and allow the government to charge more taxes, or both.
Total credit from the banking system was 122.2 billion rupees in January, only slightly down from 125.2 billion rupees in December, levels seen in late 2018. (Colombo/Mar10/2020)