Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP) debt decreased by 0.43 per cent (Rs 13,496 million) to Rs 3,146,081.26 million (Rs 3.1461 trillion) on Tuesday (9 August), thereby marginally defraying demand-pull inflationary pressure. Nonetheless, GoSL’s FVMP debt has been over Rs 3 trillion for a record consecutive 24 market days to Tuesday due to a perennial lack of revenue.
GoSL’s at least theoretical MP borrowing costs (BCs), decreased by 0.61 per cent (Rs 781.28 million) to Rs 126,675.53 million on Tuesday, led by buying pressure of riskless and now, high yielding (T) Bills and T Bonds in secondary market trading by investors, over preference to lend to the private sector, the engine of growth. Liquidity was enhanced by Rs 22,750 million (US$ 63.05 million) on Tuesday led by the settlement of transactions between the GoSL and the Central Bank of Sri Lanka (CBSL). Conversions are based on the administered value of the benchmark ‘spot’ which was Rs 360.80 to the dollar on Friday. Market was short for a record 226 market days to Tuesday, with yesterday’s increase being by 1.57 per cent (Rs 9,418 million) to 607,612 million, thereby virtually causing perpetual rate pressure. GoSL’s highest to the 229th highest FVMP debt has been registered for a record 229 market days to Tuesday. Transactions between CBSL and the GoSL are foreign reserves-neutral. CBSL, which administers open market operations, lacks transparency. 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.
By Paneetha Ameresekere