Inflationary FVMP debt up Rs 2.81B

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Government of Sri Lanka’s (GoSL’s) demand-pull inflationary face value money printing (FVMP) debt increased by Rs 2,809 million (Rs 2.81 billion) due to a persistent lack of revenue, thereby upping GoSL’s FVMP debt by 0.09 per cent to Rs 3,263,874.82 million (Rs 3.2639 trillion) Tuesday (20)

The country’s foreign reserves increased by USD 0.62 million (Rs 224 million) yesterday led by the settlement of net foreign inflows to the stock market. Conversions are based on the benchmark, albeit administered ‘spot’ value of Rs 362.90 to the US dollar as at Friday (16 September).

GoSL’s at least theoretical MP borrowing costs (BCs) declined by 1.13 per cent (1,806.69 million) to Rs 157,720.63 million, despite the increase in its FVMP debt yesterday due to market preference to invest in risk-free and high returns Treasury (T) Bills and T Bonds for the second consecutive market day.

Market was short for a record 255 market days to yesterday though this shortfall decreased for the second consecutive market day, with yesterday’s fall being by 0.55 per cent (Rs 3,033 million) to Rs 548,070 million, nonetheless causing sustained rate pressure.

Meanwhile, GoSL’s highest to the 258th highest FVMP debt has been recorded in the 258 consecutive market days to yesterday. GoSL’s FVMP debt has been over Rs 3 trillion for a record consecutive 53 market days to yesterday due to a sustained lack of revenue.

Transactions between Central Bank of Sri Lanka (CBSL) and 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 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