MPBCs under Rs 100M after 66 days

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The Government of Sri Lanka’s (GoSL) at least theoretical money printing borrowing costs (MPBCs) fell under Rs 100 million for the first time after 66 days to Thursday (16 June), led by sustained uncertainty, where investors continued to seek comfort in low returns, but riskless, Treasury (T) Bonds and T-Bills, rather than invest in the high returns private sector, the engine of growth.

Consequently, GoSL’s MPBCs fell for the eighth consecutive market day to Thursday, once more steeply by 2.25 per cent (Rs 2,286.28 million) to Rs 99,426.24 million. Prior to Thursday’s MPBCs value, the last time MPBCs went under Rs 100 million was on 11 April 2022, with a value of Rs 88,719.65 million.

GoSL’s face value (FV) MP debt decreased  by 1.81 per cent (Rs 52,858.27 million) to Rs 2,874,035.01 million (Rs 2.8740 trillion) on Thursday, led by liquidity being inflated by Rs 77,471.27 million due to the settlement of transactions between the GoSL and Central Bank of Sri Lanka (CBSL). Conversions are based on the administered ‘spot’ price as at Monday which was Rs 359.83 to the US dollar. Subsequently market’s net shortfall decreased by 3.54 per cent (Rs 24,613 million) to Rs 671,465 million on Thursday.

GoSL’s FVMP debt has been over Rs two trillion for a record 97 consecutive market days to Thursday due to an almost perennial lack of revenue. The market has been short for a record 187 market days to Thursday. GoSL’s highest to the 191st highest FVMP debt has been registered for a record 191 market days to Thursday. 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 on 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 minimize 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