CB revises down private sector credit growth target for 2020

• Forecasts 4% credit growth for this year to reflect pandemic caused economic slowdown 
• CB was targeting 12-13% growth in private sector credit for the year
• Private credit was seen gathering steam in February and March before virus outbreak
• Expects money supply to grow by 9.3% in 2020 from 7.0% in 2019

The Central Bank has slashed its expectations for private sector credit for 2020 amid expected reduction in spending and investment activities by individuals and corporates alike due to coronavirus-induced economic and financial difficulties. 

The Central Bank recently revisited its beginning of the year projections to come up with a 4.0 percent growth in private sector credit for 2020, nearly one third of what appeared possible at the outset of the new year. 

However, the authorities said the revised credit growth is sufficient enough to support the Central Bank’s economic growth forecast of 1.5 percent for this year.

The Central Bank was targeting a 12-13 percent growth in private sector credit for the year as the policy ingredients were supportive of such a growth while the business and consumer confidence was improving after the Presidential elections in November 2019. 

This was reflective of the rapid recovery in the private sector credit growth during the first three months and corporate results, which showed strong pick up in consumer spending on both staples and durable goods. 

Private sector credit, which grew by Rs.25.3 billion in February, shot up to Rs.120.1 billion in March registering a 6.4 percent growth, demonstrating the pace at which it was gathering steam before the pandemic slowed down economic activities.“We have been always arguing that Sri Lanka was less integrated with the global economy. So, if we take that argument as correct, and have seen domestic economic activities, investments and consumption driving Sri Lanka’s growth in the past as well,” said Dr. Chandranath Amarasekara, Director of Economic Research at the Central Bank.“When we look at all these, what we see is that there can only be a contraction, if at all, in the second quarter because of nearly two months of lockdowns. And we expect that there will be a revival in domestic economic activities after the elections and after the budget, and that will help Sri Lanka to achieve a positive growth definitely,” he confided. 

The Central Bank however expects the private sector credit growth to accelerate to 10 percent in 2021 before matching its earlier 12-13 percent projections in the subsequent years.

Meanwhile, the Central Bank also expects the money supply to grow by 9.3 percent in 2020 from 7.0 percent in 2019 before accelerating to over 12 percent in the subsequent years without causing any inflationary pressures. 

The Central Bank expects the inflation to be maintained at a mid-single digit level of 4-6 percent through 2020 but insists on supply side improvements to reduce near term volatility.