MPBCs sharply fall amidst sustained uncertainty

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By Paneetha Ameresekere

Government of Sri Lanka’s ( GoSL) at least theoretical money printing borrowing costs (MPBCs) sharply decreased by 18.46 per cent (Rs 22,737.75 million) to Rs 100,463.03 million yesterday due to buying pressure of Treasury (T) Bills and T Bonds in secondary market trading because of sustained uncertainty.

Liquidity was uplift by Rs 89,144 million (US$ 287.56 million) yesterday,  led by Government’s swaps with the Central Bank of Sri Lanka (CBSL) at Tuesday’s administered benchmark ‘spot’ value of Rs 310 to the US dollar. Transactions between CBSL and GoSL are foreign reserves neutral. CBSL lacks transparency in its open market operations (OMO).

Consequently, GoSL’s face value (FV) money printing (MP) debt decreased by 1.84 per cent (Rs 50,333 million) to Rs 2,684,637.18 million (Rs 2.6846 trillion)  yesterday, thereby marginally defraying demand-pull inflationary pressure as well, CBSL data further showed.

The Money market was short for a record consecutive 151 market days to  yesterday due to a sustained lack of (GoSL) revenue ,  though this shortfall decreased by 5.13 per cent (Rs 38,811 million) to Rs 718,456 million yesterday, nonetheless causing almost perennial rate pressure, CBSL data showed.

GoSL’s FVMP debt has been over Rs two trillion for a record consecutive 61 market days to yesterday. GoSL’s highest to the 155th highest FVMP debt has been registered in the 155 consecutive market days to yesterday, though not necessarily in a particular order. 

CBSL holds exclusive MP rights.  GoSL’s foreign debt servicing commitments to multilateral agencies, making ‘essential’ imports and repaying Sri Lanka development bond (SLDB holders  are met from the country’s foreign reserves because if met from the market that would cause ‘further’ depreciative pressure on the rupee as Sri Lanka is an import dependent economy.

 GoSL’s FVMP debt is equivalent to the FV holdings of CBSL’s T Bills and T Bonds. Investments in T Bills and T Bonds are risk free, because, if GoSL’s is unable to honour such debt repayments, CBSL is mandated to print demand pull inflationary money and repay such creditors.

 GoSL sells T Bills and T Bonds to raise money domestically to meet its monetary needs. MPBCs are prorated to yields fetched in secondary market trading of T Bonds and T Bills.

GoSL’s foreign debt-servicing commitments to multi-lateral agencies and to investors in Sri Lanka development bonds (SLDBs) are met from the country’s foreign reserves and not from the market, because if met from the latter that would cause further depreciative pressure on the rupee as Sri Lanka is an import dependent economy. GoSL on 12 April 2022 declaring itself bankrupt and informed its creditors other than the above that it won’t be honouring its bilateral and foreign commercial debts until such time it restructures such debt.