Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP) debt increased by Rs 59,765.38 million (2.13 per cent) to a new record of Rs 2,860,964.24 million (Rs 2.8610 trillion) on Friday (20 May) due to a sustained lack of revenue.
GoSL’s previous highest FVMP debt record of Rs 2.8488 trillion was established a week ago on 13 May 2022. However, Friday’s increase was non-demand pull inflationary, as it was used to meet an external commitment.
GoSL’s MP borrowing costs (BCs) increased by Rs 10,251.19 million (8.24 per cent) to Rs 134,644.44 million on Friday. This was due to selling pressure of Treasury (T) Bills and T Bonds in secondary market trading on Friday, to reinvest in tomorrow’s (Wednesday 25 May) Rs 90,000 million T Bill auction on expectations of higher yields because of inflation being over 20 per cent.
Market’s net shortfall decreased by Rs 62,694 million (8.48 per cent) to Rs 676,384 million on Friday and liquidity fell by Rs 2,928.62 million (US$ 8.14 million) during the course of trading on the same day, led by the settlement for the procurement of ‘essential’ imports from the country’s foreign reserves. Conversions are based on the administered benchmark ‘spot’ value of Rs 359.65 to the US dollar as at Wednesday. CBSL lacks transparency in its open market operations.
GoSL’s FVMP debt has been over Rs 2 trillion for a record 79 market days to Friday. The market has been short for a record 169 market days to Friday. GoSL’s highest to the 173rd highest FVMP debt has been registered for a record 173 market days to Friday. GoSL’s FVMP debt is equivalent to the totality of CBSL’s T Bill and T Bond holdings. MP is the exclusive right of CBSL. GoSL’s MPBCs are prorated to the results in secondary market trading of T Bills and T Bonds in the reference day.
‘Spot’ trades are settled after two market days from the date of transaction. CBSL, the steward of GoSL debt and its foreign reserves deals in ‘spot.’ The ‘spot’ is administered to minimise GoSL’s foreign debt in rupee terms, it’s learnt. ‘Essential’ imports are met from the country’s foreign reserves and not from the market, so as to minimise pressure on the rupee, as Sri Lanka is an import-dependent economy.
By Paneetha Ameresekere