ECONOMYNEXT – Sri Lanka’s private credit was negative by 43 billion rupees in April 2023, and the central government has taken dollar debt amounting to several hundred billion rupees owed by state-run Ceylon Petroleum Corporation to banks.
Private credit has contracted by 644 billion rupees from September 2023, when the country’s runaway inflation stopped along with large scale liquidity injections.
Sri Lanka’s negative private credit has reduced outflows as domestic investments fell, allowing the rupee to strengthen.
With external stability restored the central bank is now urging banks to lower interest rates, which are elevated partly due to reluctance to buy government securities due to fears of debt re-structuring.
Credit to state enterprises fell by 516 billion rupees to 1,130 billion rupees in April 2023 from a month earlier as bank dollar debt guaranteed by the Treasury was taken over by the central government.
Credit to government from commercial banks rose to 4,876 billion rupees, from 4,358 billion rupees.
CPC borrowed dollar from banks went up as the country was hit by forex shortages from flexible inflation targeting, including in 2018 when the firm market priced fuel under a price formula.
Under an IMF program state enterprises which do not have significant dollar revenues have been barred from taking dollar loans. (Colombo/Jun05/2023)