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Sri Lanka private credit negative in July, government borrowings up

ECONOMYNEXT – Sri Lanka’s credit to private sector was a negative 3.3 billion rupees in July 2019, sharply down from a 63 billion surprise spike in June, while state borrowings from the banking system continued, official data showed.

Private credit grew 7.7 percent from a year earlier to 5,603.8 billion rupees by end July 2019, down from 5,605.0 billion rupees in June., data from the central bank showed.

Sri Lanka’s private credit turned negative in 2019, after the rupee collapsed from 153 to 182 to the US dollar in 2018, when the central bank printed money to target a call money rate just as the economy recovered from a previous balance of payments crisis.

The central bank is operating a so-called flexible exchange rate, where the rupee is pegged to collect forex reserves and preventing appreciation, then unsterilized liquidity is kept for a extended period of time.

Then new money printed through multiple lender of last resort facilities in case when there is a pick-up in credit driving up rates, apparently to bring down the call money rate.

The rupee is then floated with excess liquidity.

However up to July, dollar purchases were mopped up. The central bank stopped mopping up inflows in after July 11 and allowed excess liquidity to build up.

Central bank credit to government ticked up marginally to 344.7 billion rupees in July from 341.4 billion rupees in June.

Credit to government grew 36.4 billion rupees in July on top of a 72 billion rupees in June. Up to May the deficit has been filled mostly by foreign borrowings.

From January to May government borrowings were only 79.5 billion rupees.

But in June and July 103 billion rupees had been borrowed from the banking system.

Credit to government picked up to 21.3 percent in the 12-months to July, from 17.3 percent in June.

Sri Lanka’s import and tax revenues had contracted along with credit, as the rupee collapsed under the flexible exchange rate’.

Sri Lanka also brought credit and restrictions on the import of three wheelers and private cars, which had been filling a gap in transport created by an over-regulated and partly state-run public transport system, as the currency came under pressure from money printing in 2018.

Monetary instability worsened after a political crisis in October sapped foreign investor confidence further. But a total Indonesia-style collapse with high inflation was prevented by tight liquidity analysts say.

State enterprise borrowings contracted 0.9 billion rupees in May to 729.3 billion rupees. Credit to SOEs grew 7.7 percent in the 12-month to July, up from 8.7 percent in June

The central bank in 2019 started an unprecedented program of financial repression involving using the coercive power of the state to deny market rates of return to savers.

Plans have been announced to force down lending rates as well. (Colombo/Sep08/2019)

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  1. Dinuk says:

    If total outstanding private credit was Sri Lanka’s credit to private sector was 5,605.0 billion rupees in June and 5,603.8 billion rupees by end July, hasn’t private credit come down by 1.2Bn rather than 3.3Bn?

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  1. Dinuk says:

    If total outstanding private credit was Sri Lanka’s credit to private sector was 5,605.0 billion rupees in June and 5,603.8 billion rupees by end July, hasn’t private credit come down by 1.2Bn rather than 3.3Bn?

ADB USD200mn loan for Sri Lanka economic stabilization efforts

ECONOMYNEXT – The Asian Development Bank (ADB) has approved a US 200 million dollar concessional loan to Sri Lanka to help stabilize the country’s finance sector.

The Financial Sector Stability and Reforms Program comprises two subprograms of IS 200 million dollars each, according to a statement by the ADB.

“The program’s overarching development objective is fully aligned with the country’s strategy of maintaining finance sector stability, while ensuring that banks are well-positioned for eventual recovery,” ADB Country Director for Sri Lanka Takafumi Kadono was quoted as saying in the statement.

“The expected development outcome is a stable financial system providing access to affordable finance for businesses in various sectors of the economy.”

The ADB statement continues:

“Subprogram 1 targets short-term stabilization and crisis management measures that were implemented in 2023, while subprogram 2 is planned to be implemented in 2024 and focuses on structural reforms and long-term actions to restore growth in the banking sector.

The program will help strengthen the stability and governance of the country’s banking sector; improve the banking sector’s asset quality; and deepen sustainable and inclusive finance, particularly for women-led micro, small, and medium-sized enterprises.

According to the International Monetary Fund’s (IMF) latest review, Sri Lanka’s economy is showing tentative signs of stabilization, although a full economic recovery is not yet assured.

The program is a follow-on assistance from ADB’s crisis response under the special policy-based loan that was approved for Sri Lanka in May 2023.

It is aligned with the fourth pillar of the IMF’s Extended Fund Facility provided to Sri Lanka to help the country regain financial stability.

It is also in line with the government’s reform agenda, including strengthening the operational independence of the Central Bank of Sri Lanka (CBSL) and its designation as the country’s macroprudential authority.

In designing this subprogram 1 loan, ADB has maintained close coordination and collaboration with the IMF to design targeted regulatory reforms for the banking sector—including the asset quality review—and with the World Bank on strengthening the deposit insurance scheme.

“The loan is accompanied by a $1 million grant from ADB’s Technical Assistance Special Fund to provide advisory, knowledge, and institutional capacity building for Sri Lanka’s Ministry of Finance and CBSL.”

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Sri Lank in blackout as power grid hit by cascading failure

ECONOMYNEXT – Sri Lanka suffered a blackout as Saturday evening as the state-run Ceylon Electricity Board grid was hit by a cascading power failure.

The cascading failure is believed to have been triggered by the failure of the Kothmale-Biyagama transmission line.

“The Ceylon Electricity Board wishes to inform our customers that due to the failure of Kotmale – Biyagama main transmission line, an island wide power failure has occurred,” CEB Spokesman Noel Priyantha said.

“Step by step restorations are underway and it may take few hours to completely restore the power supply.”

With hydro plants running flat out, a outage of the line tends to create a big imbalance in the demand and supply, leading to tripping of more lines and generators.

Lines can trip due to lightening strikes, or equipment failures.

Sri Lanka last suffered a cascading failure in December 2021, due to the failure of the same transmission line.

RelatedSri Lanka power blackout as grid hit by cascading failure

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Sri Lanka to host regional Food and Agriculture Organization conference

ECONOMYNEXT – Sri Lanka will host the 37th session of the Asia Pacific Regional Conference (APRC) of the United Nations Food and Agriculture Organization (FAO), from February 19-22, 2024 in Colombo.

The Conference will bring together agriculture ministers and officials from 46 countries across the region to discuss challenges in food and agriculture.

“The 37th APRC will provide a vital platform for regional collaboration, benefitting the agricultural landscape, fisheries sector and environment of Sri Lanka,” Minister Mahinda Amaraweera said at a press briefing on Friday (8) to announce the conference.

FAO has had an active presence in Sri Lanka for over 40 years. “FAO has supported the country in the implementation of Good Agricultural Practices (GAP), and the development of the fisheries sector for growth and climate resilience,” Vimlendra Sharan, FAO Representative for Sri Lanka and the Maldives said.

“The APRC conference will be an opportunity to highlight the innovative approaches introduced in partnership with the government.”

By hosting APRC, Sri Lanka hopes to demonstrate the country’s dedication to the growth of sustainable agriculture, and showcase its commitment to sustainable agricultural development.

The APRC agenda will include a forum on agritourism, especially requested by the Sri Lankan government.

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