Sri Lanka private credit positive in August, state credit expands

ECONOMYNEXT – Sri Lanka’s private credit expanded by 22.2 billion rupees in August 2019, and credit to government had expanded 47.9 billion rupees in August, while state enterprises also borrowed, more official data shows.

Overall however private credit has been weak this year with companies borrowing only 64 billion rupees on a net basis and 12 month growth was only 7.7 percent, following a credit contraction from monetary instability in 2018.

State credit expanded strongly for the third month in a row. A total of 235 billion rupees had been borrowed from the banking system this year, Central Bank data showed.

About 156 billion rupees came in the last three months. In January there was a spike in central bank credit which came from an effective reserve appropriation to repay foreign debt, but did not change the liquidity of individual banks to generate instability.

Central bank credit which had contracted up to May, supporting a strong rupee, expanded for the third
Month in August, though volumes were small.

In August Sri Lanka’s central bank cut rates 50 basis points and printed money to enforce a call money rate, amid liquidity disruptions, despite the expansion is state credit and fragile external credit outlook, spooking foreign investors and generating currency pressure.

Net expansion of central bank credit was only 4.8 billion rupees in August, though there were liquidity disruptions in the month.

There have been calls to reform the central bank and reign in its ability to generate instability using discretionary or ‘flexible’ powers.

State enterprises borrowings also spiked 17.6 billion rupees.

In the first half SOE borrowings were flat or contracting as credit taken to generate monetary instability in 2018 and boost the current account deficit was repaid especially by state enterprises, analysts have said. (Colombo/Oct07/2019)

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