Banking sector credit to govt., public corporations up in May

The banking sector gave higher amount of credit to the government and to public sector enterprises during May as the State revenues ran dry amid the closure of large swaths of the economy while rising oil prices amid State sector inefficiency engulfed public corporations increasing their reliance on the banking sector. 

According to the data, net credit to the government rose to Rs.58.9 billion in May, up from Rs.39.5 billion in April as State borrowings from commercial banks rose amid a slight fall of credit from the Central Bank. Licensed commercial banks gave net Rs.74.9 billion in credit while credit from the Central Bank declined by Rs.15.9 billion by the end of May before the Central Bank started providing liquidity to the government to make up for the lost revenues due to economic closure. 

Meanwhile credit to public corporations increased by Rs.19.4 billion in May reversing from a decline of Rs.5.1 billion in April before pressure mounted from the rising oil prices and the interruptions into their cash flows from the economic restrictions. 

Private sector credit also picked up in May as the outstanding private sector credit rose by Rs.55.6 billion, little changing from April although it was nearly half from what was seen in March. 

With the expansion in credit in May under the three categories - government, public corporations and the private sector - economy’s money supply as measured by the broad money growth or the M2b rose by 21.0 percent in May, accelerating from 20.4 percent in April.

This is a significant increase from 13.7 percent a year ago as the Central Bank provided record amount of liquidity to ensure the economy has enough money to power its recovery from the pandemic induced contraction.