Rs 42.5B printed to pay Govt salaries – CBSL

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Government of Sri Lanka’s (GoSL) face value (FV) Money Printinvg (MP) debt increased by 2.12 per cent (Rs 60,785.87 million) to a new record high of Rs 2,934,820.88 million (Rs 2.9348 trillion) on Friday (17 June) due to a persistent lack of GoSL revenue. GoSL’s previous FVMP debt record was Rs 2.9269 trillion established on Wednesday (15 June).

Of this Rs 60,785.87 million increase, Rs 42,462.13 million, which was demand-pull inflationary was to pay for public servants’ salaries, while the balance Rs 18,322.87 million (US$ 50.92 million) was to meet Government of Sri Lanka’s foreign debt servicing commitments, Central Bank of Sri Lanka (CBSL) said on Friday. Conversions are based on Wednesday’s (15) official and administered ‘spot’ rate of Rs 359.85 to the dollar. Subsequently market’s net shortfall decreased by 6.32 per cent (Rs 42,463 million) to Rs 629,002 million on Friday.

 GoSL’s at least theoretical money printing borrowing costs (MPBCs), relative to the increase in its FVMP debt, accelerated by 8.33 per cent (Rs 8,281.34 million) to Rs 107,707.58 million due to selling pressure of Treasury (T) Bills and T Bonds, targeting to reinvest in the coming Wednesday’s (22 June) Rs 93 billion T Bill auction with expectations of better returns with inflation at over 30 per cent.

 GoSL’s FVMP debt has been over Rs 2 trillion for a record 98 consecutive market days to Friday due to an almost perennial lack of revenue. The market has been short for a record 188 market days to Friday. GoSL’s highest to the 192nd highest FVMP debt has been registered for a record 192 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 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 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