The Central Bank Director Economic Research Dr. P.K.G. Harischandra yesterday issued the following clarification on the Daily FT story yesterday titled “Net credit to Govt. swells by half trillion in April, outstanding tops Rs. 8 t mark”.
We wish to inform you that while the description in the article is factually correct based on the provisional data for April 2023, the lack of background information has resulted in some ‘misreporting’, which requires a correction to ensure that the public is made aware of the real position.
With the approval of the Cabinet of Ministers at its meeting held on 30 January 2023, the outstanding foreign currency guaranteed debt of the Ceylon Petroleum Corporation (CPC) was absorbed into central government debt with effect from December 2022, in line with the actions agreed under the IMF-EFF arrangement to restructure the balance sheets of selected State Owned Business Enterprises (SOBEs). While the above was reflected under central government debt as of end 2022, this was not recorded in the balance sheets of the State-owned commercial banks pending the closure of negotiations.
However, a part of this adjustment was affected in April 2023, hence, was reflected in the balance sheet of the particular State-owned commercial bank. This statistical adjustment takes the form of a notable reduction in credit to public corporations/SOBEs and a substantial expansion in Net Credit to the Government (NCG). However, it needs to be understood that this is not fresh borrowing by the Government from the banking system, but largely an outcome of the adjustment (transfer of foreign currency denominated CPC debt to the central government).