GoSL Dominates at Pvt Sector Expense
Domestic credit extended to the Government of Sri Lanka (GoSL) and its agents, namely public corporations, by the banking system together with the monetary authorities, i.e. the Central Bank of Sri Lanka (CBSL) vis-à-vis money printing, surpassed credit extended to the private sector for the first time after 382 months or by 31 years and 10 months in August, CBSL’s latest data released on Friday (8) showed.
Total domestic credit given to both of these sectors, i.e. the GoSL and its agents together with the private sector in August was Rs 13,614.5 billion. Of this figure, credit lent to the GoSL together with public corporations amounted to Rs 6,819 billion or 50.09 per cent of total domestic credit extended to the State and its agents. Meanwhile, domestic credit given to the private sector in August was Rs 6,795.5 billion or 49.91 per cent of total domestic credit extended to both of these sectors in the review period.
The last time such a phenomenon occurred was in October 1989, the period where the JVP had ‘set fire’ to the ‘South’ of the country and so had the ‘uninvited’ IPKF and the LTTE together in the North and East (N&E).
In October 1989 total domestic credit lent to both of these sectors was Rs 99,430.1 million (Rs 99.43 billion) of which total domestic credit extended to the private sector was Rs 49,379 million (Rs 49.38 billion or equivalent to 49.66 per cent of total credit given to both of these sectors. Further, domestic credit consumed by both GoSL and its agents in October 1989 amounted to Rs 50,051.1 million (Rs 50.05 billion), equivalent to 50.34 per cent of all domestic credit consumed in the review period.
The reason behind the low value of the totality of domestic credit in October 1989 vis-à-vis August 2021 may be attributed to the smallness of the economy, then. CBSL sized the economy at Rs 228,373 million (Rs 228.37 billion) in 1989, which, by 2020 had grown to Rs 14,973 billion (Rs 14.97 trillion) according to CBSL’s latest annual data.
The genesis of the aforesaid JVP terrorism took place on 29 July 1987 in protest over the Indo-Lanka Peace Accord (ILPA) which was signed on that day, an Accord, as one local editorial described as being forced down the throat of the old man (then President J. R. Jayewardene) by India. ILPA saw the influx of the IPKF into the country and the local military in the N&E barracked.
Preceding the ILPA, the local military launched a successful operation on 26 May 1987 to subjugate both LTTE terrorism. But that operation was stopped in its tracks nine days later on 4 June 1987 due to Indian military intervention in support of LTTE terrorism, then. The capture and killing of JVP leader Rohana Wijeweera, on 13 November 1987, led to the beginning of the end of JVP terror. Domestic private sector credit once more ‘picked-up’ to be at the helm in November 1989 until its fall 382 months later in August 2021.
The 29 July 1987 JVP insurgency claimed a total of 60,000 lives. In the interim, private sector credit growth continued to be at the helm, notwithstanding the 26 December 2004 tsunami which claimed 40,000 lives and Tamil terrorism which plagued the country for 26 years, from 23 July 1983 to 18 May 2009, killing 250,000 in its wake. Private sector domestic credit growth being on the backfoot vis-à-vis domestic credit to GoSL and its agents after 382 months in August 2021 has to be looked at in the context that the private sector is considered worldwide as being the engine of growth and not the Government nor its agents.
If JVP terror was the cause of private sector credit growth to be continuously on the back foot for 10 consecutive months from January 1989 to October 1989, is it COVID-19 terror which has caused up to 13,354 deaths since the first fatality was recorded on 29 March 2020 and up to Sunday (10 October) according to latest official data the cause for the present morass? At the time the first COVID-19 death was reported, i.e. in March 2020 private domestic credit stood at 59.37 per cent of the value of all domestic credit for that month.
The related numbers being private sector domestic credit Rs 5,944.2 billion and credit to GoSL and its agents (public corporations) as described aforesaid, at Rs 4,067.1 billion. Seventeen months later at end August 2021, total private sector domestic credit released that month only stood at Rs 6,795.5 billion, a 14.32 per cent (Rs 851.3 billion) growth. However, credit to GoSL and its agents in the review period grew at a faster rate both in percentage and absolute terms, by 67.66 per cent (Rs 2,751.9 billion) to Rs 6,819 billion.
In July 2021 when GoSL was seemingly on top of COVID-19 with certain days of that month throwing up net positive recoveries per diem unlike now, the ratio between domestic credit to the private sector and GoSL and its agents were a close 50.03:49.97, before tables were turned in August 2021 to 49.91: 50.09 in favour of GoSL and its agents. Therefore, it may be construed that the reason for this change in August 2021 is not only COVID, but other factors as well, which GoSL may do well to address at its earliest.