Money Printing Rises to 2nd Highest Value of Rs 3.19 Trillion

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Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP) debt reached its second highest figure on Monday (18 July) because of a perennial lack of revenue, when its  non-demand pull inflationary FVMP debt increased by 2.14 per cent ( Rs 66,871.36 million) to Rs 3,188,882.47 million (Rs 3.1889 trillion). The country’s largest FVMP debt, thus far, of Rs 3.250 trillion was achieved on 8 July 2022.GoSL’s FVMP debt has been over Rs three trillion for a record eighth consecutive market day to Monday.

 GoSL’s at least theoretical MP borrowing costs (MPBCs) decreased by 2.02 per cent (Rs 2,636.74 million) to Rs 127,913.78 million despite the increase in its FVMP debt on Monday due to buying pressure of riskless and low returns Treasury (T) Bills and T Bonds by investors in secondary market trading, rather than lend to the lucrative private sector, the engine of growth because of sustained uncertainty.

Market liquidity was drained by Rs 150,911.36 million (US$ 417 million) on Monday due to the settlement/s of transactions between the GoSL and Central Bank of Sri Lanka (CBSL) and/or payments for essential imports and/or GoSL’s foreign debt servicing commitments met from the  country’s foreign reserves. Conversions are based on the benchmark but administered “spot” value of Rs 361.90 to the US dollar as at Thursday. CBSL lacks transparency in its open market operations.

Market was short for a record 209 market days to Monday, with this shortfall increasing by 16.11 per cent (Rs 84,040 million) to 605,800 million on Monday, thereby virtually causing perpetual rate pressure.

GoSL’s highest to the 213th highest FVMP debt has been registered for a record 213 market days to Monday. GoSL’s FVMP debt has been over Rs two trillion for a record 119 consecutive market days to yesterday because of 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 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.  Transactions between CBSL and GoSL are foreign reserves neutral.

By Paneetha  Ameresekere