Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP) debt increased for the fourth consecutive market day to yesterday, with yesterday’s increase being 0.09 per cent (Rs 2,458.24 million) to reach its second highest figure of Rs 2,864,149.41 million (Rs 2.8641 trillion), breaking its previous second highest record of Rs 2.8617 trillion established on the previous market day Friday (3 June).
Yesterday’s increase was however non-demand pull inflationary as it was used to meet external commitments. Meanwhile, GoSL’s highest FVMP debt recorded thus far is Rs 2.8959 trillion registered on 27 May 2022. The cause of FVMP debt is due to inadequate revenue.
Despite yesterday’s increase in MP, GoSL’s MP borrowing costs (BCs) fell by 4.50 per cent (Rs 5,309.89 million) to Rs 112,805.74 million yesterday, due to sustained buying pressure of riskless, low returns Treasury (T) Bills and T Bonds in secondary market trading because of perennial uncertainty, rather than invest in the high returns private sector, the engine of growth.
Market’s net shortfall increased for the fifth consecutive market day to yesterday, this time by 1.08 per cent (Rs 75,438 million) to
Rs 694,078 million, led by a liquidity fall of Rs 9,896.24 million (US$ 27.44 million) during the course of trading caused by the settlement of paying for “essential” imports after buying US dollars from the country’s foreign reserves. Conversions are based on the administered benchmark “spot” value of Rs 360.60 to the US dollar as at Thursday.
GoSL’s FVMP debt has been over Rs two trillion for a record 90 consecutive market days to yesterday due to an almost perennial lack of revenue. The market has been short for a record 180 market days to yesterday. GoSL’s highest to the 184th highest FVMP debt has been registered for a record 184 market days to yesterday. GoSL’s FVMP debt is equivalent to the totality of Central Bank of Sri Lanka’s (CBSL’s) T Bill and
T Bond holdings. MP is the exclusive right of CBSL. GoSL’s MPBCs are prorated to the outcome 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. The ‘spot’ is administered to minimise GoSL’s foreign debt in rupee terms and lower the cost of ‘essential’ imports, 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. Transactions between CBSL and GoSL are foreign reserves neutral.
By Paneetha Ameresekere