Govt’s domestic borrowings surge

*Private sector gets Rs. 261.8bn in new loans up to August

Government borrowings from domestic sources surged ahead of private sector borrowings in August, latest data released by the Central Bank showed.

New loans to the government from the Central Bank grew by Rs. 21 billion in August, a four month high, while new loans from the domestic banking sector amounted to Rs. 10 billion, a three month high. New loans from foreign sources amounted to Rs. 1.6 billion.

New loans from the domestic banking system to the private sector amounted to Rs. 16.1 billion in August, the lowest since April. Rs. 1.6 billion worth of foreign loans had been settled in August.

The Central Bank earlier this week said "The tight monetary policy measures implemented by the Central Bank to moderate private sector credit expansion continued to prove effective and the overall private sector credit growth moderated substantially to 28.7 per cent, year-on-year in August, falling below 30 per cent for the first time since March 2011.

"In absolute terms, the expansion of credit in August was Rs. 14 billion compared to the average monthly increase of Rs. 51.8 billion in the first quarter of 2012. Despite the slowdown of credit to the private sector, broad money growth in August was higher than the previous month, reflecting higher public sector borrowing," the bank said.

For the first eight months of this year, domestic banks generated new loans to the private sector amounting to Rs. 261.8 billion. During 2011, new loans generated to the private sector amounted to Rs. 487.7 billion. The new loans generated to the private sector in 2010 amounted to Rs. 290 billion.

New loans during this period to the government from the Central Bank totalled Rs. 53.8 billion and Rs. 96.2 billon from the domestic banking sector.

Year-on-year, private sector net out standing credit from the domestic banking sector grew 30.7 percent to Rs. 2,083.3 million while the net outstanding credit from the Central Bank to the government surged 231.4 percent year-on-year to Rs. 316.5 billion.

Total outstanding loans from the domestic banking sector to the government grew 5.8 percent year-on-year to Rs. 569 billion.

Total outstanding credit to public corporations grew 86.5 percent year-on-year to Rs. 263.8 billion.

In 2010, the Central Bank warned the government against reckless spending as it could threaten the interest rate regime and low inflation. It urged the government and public enterprises to borrow more from overseas which would leave room for private sector credit growth which could boost the economy.

So far this year, government borrowings have been way off target.

Total outstanding debt of the government reached Rs. 6,161 billion as at end July 2012, the Central Bank said in a separate report, growing by Rs. 1,027.6 billion during the seven month period this year. According to the 2012 budget, the government’s borrowing limit for the full year is Rs. 1,104 billion.

According to the 2012 budget, the government’s debt requirement for 2012 was Rs. 776.2 billion from domestic sources and Rs. 327.8 billion from external sources. However, by end July 2012, the domestic debt component grew by Rs. 381.6 billion from end December 2011 while foreign debt surged by Rs. 646 billion.

The government’s budget deficit target for the full year is 6.2 percent of GDP, however by July, the deficit reached nearly 5.8 percent of GDP with expenditure growth racing ahead of revenue.

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