Sri Lanka inflation caused by govt. credit, not private sector: IMF

Dec 06, 2007 (LBO) – Sri Lanka’s inflation is strongly linked to government credit, the International Monetary Fund (IMF) said in a report released this week, clearing the private sector of blame for rapidly rising prices. . IMF said bank credit to the private sector has accelerated in Sri Lanka in recent years, but the relationship to inflation is weak.

Synchronised

The monetary watchdog said inflation appeared to be “synchronized with public credit developments than with private sector credit.”

IMF said the statistical correlation between inflation and public sector credit growth is 0.8 while the correlation between private sector credit growth and inflation was less than 0.3.

Sri Lanka’s authorities including the central bank have habitually blamed private sector credit growth for inflation, usually naming private sector credit ahead of government credit.

Top central bankers have also attempted to discredit the strong link between changes in central bank credit (printed money) to government and inflation highlighted by private economic analysts, claiming the link was ‘spurious.’

In sharp contrast the IMF s