By Shihar Aneez and Ranga Sirilal
Aug 30 Sri Lanka’s private sector credit growth will decelerate to 18 percent at the end of 2016 from more than 28 percent as the central bank’s policy tightening measures begin to bite, Governor Indrajith Coomaraswamy said on Tuesday.
Private sector credit growth edged up to a four-year high of 28.2 percent in June, which the central bank attributed to “a high intake of credit to the industry and services sectors” as well as “substantial growth in personal loans and advances”.
Figures for July have not been officially released by the central bank, but Coomaraswamy said that reading would also be higher than 28 percent.
“Our expectation is by the end of the year, given current policies and if the government’s fiscal outcome stays pretty much on track, then hopefully private sector credit growth will come down to 18 percent,” he told reporters in Colombo.
Asked about plans to raise indirect taxes, Coomaraswamy said it reflected the government’s “very limited fiscal space” and that it wanted private investments to play a bigger role in the development process.
“You have to balance out whether this is the time to be increasing certain direct taxes which might disincentivise some of the investment,” he said.
The government faces difficulties in trying to achieve its ambitious revenue and budget deficit targets this year after two Supreme Court ruling halted value-added tax hikes.
Coomaraswamy, who took over at the central bank in July, said the government will not be undertaking any more foreign borrowing this year.
Sri Lanka raised $1.5 billion last month with a dual-tranche sovereign bond and foreign investors have been buying up the island nation’s government securities since it agreed a $1.5 billion loan with the International Monetary Fund in June.
Asked if the currency is under upward pressure, the central bank chief said he didn’t think capital inflows had been of sufficient magnitude to exert too much pressure on the rupee.
He also said growth could be closer to 5.5 percent this year if the existing macroeconomic background holds.
Sri Lanka’s $82 billion economy grew 4.8 percent last year. (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Catherine Evans)