Credit Trends

July 13, 2010 (LBO) – Sri Lanka’s loans to private borrowers rose by 7.7 billion rupees in May 2010 but the state borrowed more than double that amount from commercial banks to support its deficit spending, official data showed. Excessive state borrowing that appropriates people’s savings at high rates has been the most important constraint to Sri Lanka’s growth for years.

But in 2009 credit private demand collapsed amid a downturn and banks bought into government debt as interest rates fell and private credit shrank.

This year the government is expected to keep its deficit at 8.0 percent of gross domestic product under a deal with the International Monetary Fund revived last month, down from 9.9 percent last year.

Loans to private borrowers from commercial banks rose to 1,249.9 billion rupees in May from 1,242.2 billion rupees in April.

Loans denominated in rupees rose to 1,098.2 billion rupees in May from 1,093.7 billion a month earlier, while foreign exchange denominated loans increased to 151.7 billion rupees from 148.4 billion rupees.

But loans to the state from commercial banks rose to 463.3 billion rupees in May from 444.8 billion rupees in April.

Credit from the central bank to the gover