Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP) debt decreased for the second consecutive market day to Wednesday (8 June), by 0.05 per cent (Rs 1,514 million) to Rs 2,836,669.41 million (Rs 2.8367 trillion) on Wednesday, thereby marginally deflating demand-pull inflationary pressure as well.
However, the decrease in GoSL’s MP borrowing costs (BCs) relative to the fall in GoSL’s FVMP debt, accelerated for the second consecutive market day to Wednesday, by 1.17 per cent (Rs 1,299.89 million) to Rs 109,954.23 million on Wednesday 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. Wednesday was also the third consecutive market day that GoSL’s MPBCs fell for similar reasons.
Market’s net shortfall decreased by 0.07 per cent (Rs 482 million) to Rs 665,408 million, led by a liquidity uplift of Rs 1,996 million (US$ 5.54 million) during the course of trading on Wednesday, dominated by the settlement of net foreign inflows. Conversions are based on the administered benchmark ‘spot’ value of Rs 360.28 to the US dollar as at Monday.
GoSL’s FVMP debt has been over Rs 2 trillion for a record 92 consecutive market days to Wednesday due to an almost perennial lack of revenue. The market has been short for a record 182 market days to Wednesday. GoSL’s highest to the 186th highest FVMP debt has been registered for a record 186 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 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. 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 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