FVMP debt over Rs 2T for record 100 days

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Government of Sri Lanka’s face value money printing (FVMP) debt being over Rs 2 trillion hit a record 100 market days yesterday, whilst increasing by 0.28 per cent (Rs 7,944 million) to Rs 2,874,258.85 million (Rs 2.8743 trillion) due to a perennial lack of revenue.

However, yesterday’s increase in GoSL’s FVMP debt was non-demand pull inflationary as it was used to meet an external commitment, such as the import of petroleum fuels, thereby bleeding the country’s foreign reserves by US$ 54.48 million (Rs 9,599 million). Conversions are based on the benchmark, but officially administered “spot” which was fixed at Rs 359.75 as at Friday (17 June). Subsequently, market’s net shortfall increased by 1.86 per cent (Rs 11,655 million) to Rs 637,722 million yesterday.

Meanwhile, despite the increase in GoSL’s FVMP debt, GoSL’s at least theoretical MP borrowing costs (BCs) fell by 1.97 per cent (Rs 1,967.85 million) to Rs 97,786.41million due to buying pressure of riskless, but low returns Treasury (T) Bills and T Bonds in secondary market trading yesterday, rather than invest in the high returns private sector, the engine of growth, led by sustained uncertainty.

GoSL’s FVMP debt has been over Rs 2 trillion for a record 100 consecutive market days to yesterday due to an almost perennial lack of revenue. The market has been short for a record 190 market days to yesterday. GoSL’s highest to the 194th highest FVMP debt has been registered for a record 194 market days to yesterday.

 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