Sri Lanka bank credit to state surges in Dec 2020

ECONOMYNEXT – Sri Lanka’s credit to the government from the banking system rose to 187.7 billion rupees in December 2020, up from 99.1 billion rupees in November, while private credit also continued to grow, official data shows.

Central Bank credit to government (printed money) expanded 69.4 billion rupees in December, up from 64.3 billion rupees in November.

In December however, there is an increase in real money demand as the public draws down cash for the Christmas and New Year holiday season where the government and private firms gives advances or pays salaries early.

The government had borrowed a record 1.78 trillion rupees in 2020 after a ‘stimulus’ tax cut in November 2019, which included 505 billion from the central bank as tax revenues were lost.

Some of the borrowings were to repay foreign loans on a net basis with a series of credit downgrades after money printing pushed weakened the rupee.

Sri Lanka lost over two billion US dollars in forex reserves 2020 as money was printed to keep interest rates down.

This year economic activity was muted amid Coronavirus crisis.

Credit to the private sector expanded by 74.3 billion rupees in December 2020, taking the total to 372 billion rupees, up from 236 billion rupees in 2019.

Credit to state enterprises fell 8.3 billion rupees. State enterprises borrowed a total of 814 billion rupees, which also includes exchange rate variations in dollar borrowings. (Colombo/Jan31/2021)

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