Sri Lanka central bank urges lending rate cut

Apr 12, 2009 (LBO) – Sri Lanka’s central bank is urging commercial banks to cut lending rates to stimulate growth while heavy government borrowing continues to crowd out the productive sectors.

On April 08, Sri Lanka’s average commercial bank prime lending rate was 19.34 percent. Banks are taxed to the hilt, and have to cope with volatile interest rates, and rising bad loans in a weakening economy.

In January private sector credit turned negative in absolute terms to 1,264.2 billion rupees from 1,278.5 billion rupees in December 2008.

Meanwhile credit to government increased to 625.7 billion rupees from 572.0 billion rupees in the same month.

In 2008 the current account balance of the government budget, which shows the ‘savings’ of the public sector was 2.0 percent or 88.4 billion rupees in deficit. The dis-savings of the government had kept national debt high and total national savings down.

Since 2004 Sri Lanka has gone on a spending spree throwing fiscal prudence to the wind, borrowing commercially abroad, and printing money while consistently over-estimating state revenues.

In 2008, revenues were over-estimated by a massive 95 billion rupees, and 118 billion ru