GoSL’s FVMP Debt Moves Closer to Rs 1 Trillion
By Paneetha Ameresekere
Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP) debt moved closer to the Rs one trillion mark, with its non-demand pull inflationary FVMP debt increasing by 1.28 per cent (Rs 11,686 million) to a new record of Rs 946,296.87 million yesterday, breaking its previous record of Tuesday. GoSL’s FVMP debt has recorded its highest, second highest and third highest values on three consecutive market days, i.e., Wednesday, Tuesday and Monday, respectively.
Wednesday was also the eighth consecutive market day that GoSL’s FVMP debt has increased, with this debt being over Rs 0.5 trillion for a record 155 consecutive market days due to lack of revenue.
GoSL’s money printing borrowing costs (MPBCs) sharply decreased for the third consecutive market day to yesterday, this time by 0.52 per cent (Rs 115.31 million) to Rs 22,188.04 million led by sustained uncertainty, with the market preferring to invest in low cost, riskless Treasury (T) Bills and T-Bonds in secondary market trading rather than lend to the lucrative private sector, the engine of growth.
Meanwhile, liquidity decreased by Rs 21,163 million (US$ 105.88 million) led by the settlement/s of GoSL’s foreign debt servicing commitments and/or Central Bank of Sri Lanka’s (CBSL’s) swaps with the market and/or CBSL’s US dollar sales to and/or swaps with GoSL during Wednesday’s trading. Consequently net excess liquidity decreased by 10.86 per cent (Rs 9,477 million) to Rs77,814 million at the end of Wednesday’s trading. Transactions between GoSL and CBSL are foreign reserves neutral.
Conversions are based on CBSL’s administered ‘spot’ on Monday which was Rs 199.87 to the dollar. ‘Spot’ trades are settled after two market days from the date of transaction, CBSL deal in ‘spot.’ CBSL is the steward of GoSL debt and its foreign reserves. GoSL’s Investments in T-Bills and T-Bonds are risk free, because in the event GoSL is unable to repay such debt, CBSL is mandated to print demandpull inflationary money and repay such creditors.
CBSL is the mandated body to print rupees. MPBCs are prorated to secondary market trading in T Bills and T Bonds. The market is avoided to meet GoSL’s foreign debt servicing commitments for fear that that would further pressure the rupee as Sri Lanka is an import-dependent economy. CBSL lacks transparency in its daily ‘open market operations’ statements.