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Sri Lanka’s private and state credit surge in June

ECONOMYNEXT – Credit to Sri Lanka’s private borrowers had surged in June, after contracting the for two months in a row, official data showed while credit to government also spiked.

Credit to private borrowers expanded by 63.2 billion rupees to 5,605 billion rupees in the month of June.

Cashflows of many Sri Lankan private businesses were hit after Easter Sunday blasts in April. Sri Lanka usually has weak credit growth in April, which is a holiday month, after a peaking March.

Credit generally recovers in May and June, past data shows, though it is not clear what is driving growth in June in 2019.

In 2019, Sri Lanka’s private credit has been weak, after monetary instability in 2018, with the rupee collapsing from 153 to 182 to the US dollar.

Amid weak private credit the rupee has recovered.

Credit to central government also spiked 72.1 billion rupees, while state enterprises borrowed another 3.8 billion rupees.

Raising some concerns central bank credit to government also went up by 25 billion rupees to 341 billion rupees, ending a trend of contraction.

However in the month of June the central bank was a net buyer in forex markets, purchasing 87.5 million US dollars from commercial banks.

Total credit disbursed by the banking system including central bank credit was 139 billion rupees, highest since the 144 billion during the balance of payments and capital flight days in the last quarter of 2018 when large volumes of money was printed.

So far in 2019, credit to private sector was only 43.6 billion rupees, down from 334 billion rupees in 2018.

Credit to government was 151.4 billion rupees up from 104.6 billion in the first six months of 2019.

In Sri Lanka monetary instability hits suddenly due to the injecting of large volumes of money by the central bank through various instruments, though weak private credit can reduce risks. (Colombo/Aug13/2019)