GoSL’s FVMP debt increases for 2nd market day


Government of Sri Lanka’s (GoSL) face value money printing (FVMP) debt, due to a sustained lack of revenue, increased for the second consecutive market day to Wednesday (22), with Wednesday’s increase being Rs 10,492 million (0.37 per cent) to Rs 2,884,750.85 million (Rs 2.8848 trillion).

Of this increase, Rs 74 million was demand pull inflationary as it was used for a domestic commitment, while the balance Rs 10,418 million (US$ 28.88 million) was non-demand pull inflationary as it was used for an external commitment, like paying for an ‘essential’ import such as cooking gas from the country’s foreign reserves on Wednesday. Conversions are based on the benchmark, but officially administered ‘spot’ which was fixed at Rs 360.75 to the US dollar as at Monday (20).

Meanwhile, GoSL’s MP borrowing costs (BCs), relative to the increase in its FVMP debt, accelerated by 0.97 per cent (Rs 952.08 million) to Rs 96,834.33 million  on Wednesday, led by selling pressure of Treasury (T) Bills and T Bonds in secondary market trading to reinvest in the Rs 93 billion T Bill auction of date held on the same day, with expectations of higher returns with inflation being over 40 per cent.

GoSL’s FVMP debt has been over two trillion rupees for a record 101 consecutive market days to Wednesday due to an almost perennial lack of revenue. The market has been short for a record 191 market days to Wednesday. GoSL’s highest to the 195th highest FVMP debt has been registered for a record 195 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 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