Money printing hits new record of Rs 2.78T

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Government of Sri Lanka’s (GoSL’s) non-demand pull inflationary face value money printing (FVMP) debt increased by Rs 42.4 billion (1.55 per cent) to a new record high of Rs 2.7813 trillion yesterday (27), beating the previous highest MP record of Rs 2.7422 trillion established  on 19 April 2022 due to a persistent lack of revenue.

The country’s foreign reserves bled by US$ 568.06 million (Rs 190 billion) due to a combination led by the purchase of ‘essential’ import and GoSL’s foreign debt service commitments to multilateral agencies yesterday at Central Bank of Sri Lanka’s (CBSL’s) Monday’s administered benchmark ‘spot’ value of Rs 334.80 to the US dollar. CBSL lacks transparency in its ‘open market operations.’ Transactions between CBSL and GoSL are foreign reserves-neutral.

GoSL’s at least theoretical MP borrowing costs (BCs) increased by 3.92 per cent (Rs 4,768.60 million) to Rs 126,481.42 million yesterday due to selling pressure of Treasury (T) Bills and T Bonds in secondary market trading to reinvest in the proceeds so accrued at today’s Rs 35 billion T Bond auction for better returns because of rising yields.

Money market was short for a record consecutive 155 market days to yesterday due to a sustained lack of (GoSL) revenue, with this shortfall increasing by 21.08 per cent (Rs 147,713 million) to a new record high of Rs 848,287 million, causing almost perennial rate pressure, CBSL data showed.

GoSL’s FVMP debt has been over Rs 2 trillion for a record consecutive 65 market days to yesterday. GoSL’s highest to the 159th highest FVMP debt has been registered in the 159 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 is unable to honour these debt repayments, CBSL is mandated to print demand-pull inflationary money and repay these 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 on 12 April 2022 declared itself bankrupt and informed its creditors that other than the above foreign debt repayments, it won’t be honouring its bilateral and foreign commercial debts until it restructures its foreign debt. 

By Paneetha Ameresekere