The latest financial data released by the Central Bank reveals a nuanced picture of state borrowing dynamics in November, showcasing a modest uptick in funds sourced from commercial banks after a decline in the previous month.
However, a contrasting trend emerges as the money acquired from the Central Bank continues its descent, indicating a gradual unwinding of treasury bills and bonds stock held on behalf of the government.
According to the weekly report, the net credit to the government from the banking sector saw an increase of Rs.30.0 billion in November, bringing the total outstanding credit to a substantial Rs.7,722.0 billion. This marks a reversal from October's decline of Rs.94.5 billion in net credit. Notably, the banks were solely responsible for the rise in November, as credit from the Central Bank witnessed a further decline, down by Rs.36.0 billion.
The breakdown reveals that credit extended by the banking sector, excluding the Central Bank, amounted to Rs.66.2 billion. Simultaneously, credit from the Central Bank dwindled, contributing to the Rs.71.3 billion decline observed in October. The State's outstanding to the Central Bank now stands at Rs.2,317.0 billion, a decrease from Rs.1,052.0 billion over the last twelve months.
Meanwhile, the total outstanding credit to the government from the banking sector has risen by Rs.1,483.0 billion in the twelve months, reaching Rs.5,405.0 billion. This surge is attributed to the Central Bank's earlier initiatives to raise substantial funds through treasury bills and bonds, coupled with a cautious approach to expanding its balance sheet.
The Central Bank's unwinding of net credit to the government is expected to persist, aligned with program targets capped at Rs.2.8 trillion by the end of the previous year, as noted in a recent report by First Capital Research. The report emphasizes the commitment to refraining from additional primary market purchases of government securities, with exceptions made to address external financing shortfalls within six months of the first review.
Central Bank Governor, Dr. Nandalal Weerasinghe, disclosed that the Treasury is now maintaining a cash buffer to avoid the need for monetary financing of the budget. Looking ahead, the government's improved fiscal situation in the fourth quarter, driven by higher revenue collection, may lead to a softening of funds raised through bills and bonds. This positive development is anticipated to ease the crowding-out effect, allowing more funds to be lent to the private sector while exerting downward pressure on interest rates.
In a related trend, credit to the private sector from commercial banks experienced a notable surge of Rs.63.0 billion in November, extending a six-month-long streak of credit growth.
