Government credit surges in December amid CPC balance sheet restructuring

• Net credit to govt. rose sharply by Rs.563 billion in December
• Debt to the govt. for the whole of 2023 expanded by Rs.814 billion

In December 2023, the net credit extended to the government by the banking system surged by more than half a trillion rupees, while credit to public corporations plummeted by over Rs. 350.0 billion. 
This shift occurred as the government assumed the remaining outstanding foreign currency guaranteed debt of the Ceylon Petroleum Corporation (CPC), complying with conditions set by the International Monetary Fund (IMF) to restructure the balance sheets of certain state-owned enterprises.

According to the data made available by the Central Bank, it was seen that the net credit to the government rose sharply by Rs.563.0 billion in December alone to a total outstanding government debt of Rs.8,285.0 billion by the end of last year.

The government went about this exercise in two phases – first in April 2023 and the second in December – causing the corresponding decline in the credit to public corporations.
The net credit to the public corporations fell by Rs.356.0 billion in December and by Rs.980.0 billion for the whole year, largely due to this exercise and by the end of the year total outstanding public corporation debt stood at Rs. 769.0 billion, sharply down from Rs.1, 749.0 billion at the start of 2023.

Meanwhile, for the whole year these debt to the government rose by Rs.814.0 billion as the government practiced much fiscal restraint under its revenue based fiscal consolidation exercise and the Central Bank cut its bond purchases on behalf of the government as part of the Extended Fund Facility program with the IMF.

In 2023, the debt obtained from the Central Bank decreased by Rs.1,056.0 billion, totaling Rs.2,376.0 billion by the year’s end. This reduction was due to a cap of Rs.2.8 trillion on the bills and bonds that could be bought by the Central Bank, as stipulated under the IMF programme.
Exceptions were made to tackle external financing shortages within six months following the first programme review.

Meanwhile the commercial banks have funded the government the most in 2023 as they raised large sums of money by issuing treasury bills and bonds, a pace which has now eased somewhat due to improvement seen in the government fiscal conditions.
For instance in 2023, the net credit from  commercial banks to the government rose by Rs.1,870.0 billion to a total outstanding of Rs.5,908.0 billion by the year end.