Inflationary Money Printing Up Rs 16.1 Billion

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Government of Sri Lanka’s (GoSL’s)  demand pull inflationary face value money printing (FVMP) debt increased by  Rs 16,122 million on Tuesday (12 July) due to a perennial lack of revenue. Consequently, GoSL’s FVMP debt as a whole increased by 0.53 per cent to Rs 3,040,736.11 million
(Rs 3.0407 trillion) on Tuesday. GoSL’s FVMP debt has been over three trillion rupees for the fifth consecutive market day to Tuesday due to inadequate revenue.

The country’s foreign reserves were richer by USD 16.37million (Rs 5,899million) led by the settlement of net foreign inflows on Tuesday. Conversions are based on Friday’s administered ‘spot’ value which was Rs 360.35 to the US dollar.

However, GoSL’s MP borrowing costs (BCs) fell by 0.03 per cent (Rs 33.67 million) to Rs 130,550.52 million on Tuesday due to buying pressure of riskless and relatively low returnsTreasury (T) Bills and T Bonds by investors in secondary market trading, rather than invest in the high returns private sector, the engine of growth, due to continuous uncertainty. Market was short for a record 206 market days toTuesday, though this shortfall decreased by 4.25 per cent (Rs 22,021million) to 496,370 million, nonetheless virtually causing perpetual rate pressure.

GoSL’s highest to the 210th highest FVMP debt has been registered for a record 210 market days to Tuesday. GoSL’s FVMP debt has been over Rs two trillion for a record 116 consecutive market days toTuesday due to an almost perennial lack of revenue.

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