State borrowings from Central Bank and commercial banks fall in April

State borrowings fell in April after the government raised a massive amount of debt from the Central Bank and banking sector in March, according to the latest data released by the Central Bank. 

However, the government could be forced to resort to fresh borrowings in the ensuing months, as it contends with the falling tax revenues and spiralling expenses to control COVID-19. 

The government’s net borrowings decreased by Rs.39.5 billion in April, after raising Rs.211.4 billion in March. 
Debt from monetary authorities, including the Central Bank, declined by Rs.21.7 billion to Rs.1,070.5 billion by April-end. 

 However, this debt stock remains nearly double the amount from a year ago, which was at Rs.565.8 billion, since the Central Bank began providing record liquidity to the government, when the government closed down the economy for two months from mid-March to mid-May to fight the virus. 

With the absence of business and consumer activity since mid-April this time, the government is confronting a similar crisis, as they forgo billions of rupees of tax incomes amid increased expenditure to assist millions of people, apart from spending on mass testing, vaccines and other virus-containing activities. 

Meanwhile, the net credit to the government from commercial banks declined by Rs.17.9 billion to Rs.3,894.5 billion, reflecting settlements which outweighed the fresh borrowings from the banking sector.

With the April data, the government had a total outstanding debt stock of Rs.4,965.1 billion by April-end. Meanwhile, public corporations also settled part of their debt during April, as their net credit dropped by Rs.5.1 billion to a total outstanding debt stock of Rs.1,093.4 billion. 

With the net state credit turning negative in April and the deceleration seen in private sector credit, the money supply in the economy, as measured by broad money or M2b, eased to 20.4 percent from a year ago, slowing from 21.5 percent in March. 

The Central Bank expects to end the year with a broad money supply of 21 percent, driven by a low base.