FVMP Debt Rises to 2nd Highest Value of Rs 3.195T


Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP) debt rose to its second highest value on Tuesday (30 August) due to a sustained lack of revenue.

Consequently, GoSL’s FVMP debt increased by 0.38 per cent (Rs 12,045 million) to Rs 3,195,701.89 million (Rs 3.195 trillion) on Tuesday. A Higher value than this took place on 8 July where GoSL’s FVMP debt was recorded at Rs 3.25 trillion. However, yesterday’s increase was non-demand pull inflationary as it was used to meet an external commitment.

The country’s foreign reserves haemorrhaged by US$ 33.68 million (Rs 12,173 million) led by the settlement of payments made for “essential” imports on Tuesday. Conversions are based on the administered “spot” value which was Rs 361.40 to the US dollar.

 GoSL’s at least theoretical MP borrowing costs (BCs) fell by 0.02 per cent (Rs 27.65 million) to Rs 137,819.54 million on Tuesday despite the increase in its FVMP debt,  led by buying pressure of Treasury T Bills and T Bonds in secondary market trading due to higher yields offered.

Market was short for a record 240 market days to  Tuesday,  with this shortfall increasing by 0.02 per cent (Rs 128 million) to Rs 612,043 million, thereby causing  sustained rate pressure.

GoSL’s FVMP debt has been over Rs three trillion for a record consecutive 38 market days to Tuesday due to a sustained lack of revenue.  Also, GoSL’s highest to the 243rd highest FVMP debt has been registered for a record 243 market days to Tuesday.

Transactions between the CBSL and the GoSL are foreign reserves neutral and CBSL which administers daily 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 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.

By Paneetha Ameresekere