GoSL’s FVMP Debt Rises to a New Record of Rs 2.734T

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By Paneetha Ameresekere

Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP) debt increased by 1.56 per cent (Rs 41,867.17million) to a new record of Rs 2,734,013.81 million (Rs 2.734 trillion)  on Monday (18 April), due to a persistent lack of revenue. GoSL’s previous highest FVMP debt of Rs 2.6921trillion was established last Tuesday (12 April).

Monday’s increase of Rs 41,867.17 million was however non-demand pull inflationary as it was used to meet GoSL’s external commitments and not domestic needs.

GoSL’s at least theoretical MP borrowing costs (BCs) increased by 4.49 per cent (Rs 4,754.36 million) to Rs 110,745.57 million on Monday due to selling pressure of Treasury (T) Bills and T Bonds in secondary market trading, to reinvest in today’s (Wednesday 20 April) largest ever T Bill auction, an auction for the sale of Rs 97,500 million worth of 

T Bills, due to expectations of higher returns because of rising yields.

Liquidity decreased by Rs 52,361.17 million (US$ 168 million) during Monday’s trading, led by GoSL’s foreign debt servicing commitments and to make “essential” imports, paid for from the country’s foreign reserves. Conversions are based on the administered benchmark ‘spot’ value of Rs 311.68 to the US dollar as at last Monday (11 April).

Last Tuesday (12 April), Finance Ministry suspended all other foreign debt servicing commitments, other than multilateral debt repayments and investments in Sri Lanka development bonds (SLDBs) because of solvency problems. Due to a lag period, the impact of this decision would have been felt at yesterday’s (Tuesday 19 April) open market operations (OMO).

Money market was short for a record consecutive 148 market days to Monday,  with this shortfall increasing by 1.43 per cent (Rs 10,494 million) to a new record Rs 745,953 million,  causing almost perennial rate pressure. The previous highest net shortfall was Rs 735,459 million which took place last Tuesday (12 April).CBSL lacks transparency in its OMO.

GoSL’s FVMP debt has been over Rs two trillion for a record consecutive 58 market days to Monday. GoSL’s highest to the 152nd highest FVMP debt has been registered in the 152 consecutive market days to Monday, though not necessarily in a particular order.Transactions between CBSL and GoSL are foreign reserves neutral. CBSL also indulges in swaps with the market.