FVMP debt rises to almost 3T

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Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP) debt increased by Rs 10,300 million to Rs 2,821,926.39 million (Rs 2.8219 trillion) on Wednesday to record its third largest FVMP debt to date. Its highest being Rs 2.8610 trillion registered on Friday (20 May) and second highest, Rs 2.8488 trillion recorded on 13 May. However, Wednesday’s MP increase was non-demand pull inflationary causing, as it was used to meet an external commitment.

Market’s net shortfall  increased by Rs 14,800 million (2.32 per cent) to Rs 653,289 million on Wednesday, led by a liquidity fall of Rs 25,100 million (US$  69.83 million) during the course of trading, led by the settlement of meeting the payments for ‘essential’ imports like fuel from the country’s foreign reserves. Conversions are based on the administered benchmark ‘spot’ value of Rs 359.44 to the US dollar as at Monday.

GoSL’s MP borrowing costs (BCs) fell for the second consecutive market day to Wednesday, this time by Rs 1,665.96 million (1.31 per cent) to Rs 125,752.26 million due to continued buying pressure of riskless, but low returns Treasury (T) Bills and T Bonds in secondary market trading, rather than invest in the high returns private sector, the engine of growth, due to persistent uncertainty.

GoSL’s FVMP debt has been over Rs two trillion for a record 82 consecutive market days to Wednesday due to an almost perennial lack of revenue. The market has been short for a record 172 market days to Wednesday. GoSL’s highest to the 176th highest FVMP debt has been registered for a record 176 market days to Wednesday. 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, while ‘essential’ imports are met from the country’s foreign reserves and not from the market to prevent further depreciative pressure on the rupee as Sri Lanka is an import dependent economy. CBSL lacks transparency in its open market operations.

By Paneetha Ameresekere