New Record by Money Printing

By Paneetha Ameresekere | Published: 2:00 AM Sep 24 2021

By Paneetha Ameresekere 

Government of Sri Lanka’s (GoSL’s) nondemand pull inflationary face value money printing (FVMP) debt increased by 0.20 per cent (Rs 3,192 million) for the second consecutive market day to yesterday, thereby setting a new record high of GoSL’s FVMP debt as a whole to Rs 1,610,590.46 million (Rs 1.6106 trillion) yesterday. GoSL’s highest, to the eighteenth highest FVMP debt, has been registered in the 18 consecutive market days to yesterday, though not necessarily in a particular order. 

The highest, Rs 1.6106 trillion was recorded yesterday, second highest Rs 1.6074 trillion on Wednesday, third highest Rs 1.6071 trillion on Friday 17 September, fourth highest Rs 1.6028 trillion on Tuesday 21 September, fifth highest 1.5776 trillion on 16 September, sixth highest Rs 1.5560 trillion on 14 September, seventh highest Rs 1.5498 trillion on 15 September, eighth highest Rs 1.5429 trillion on 13 September, ninth highest Rs 1.5409 trillion on 10 September, tenth highest Rs 1.5324 trillion on 8 September, eleventh highest Rs 1.5307 trillion on 7 September, twelfth highest Rs 1.5306 trillion on 9 September, thirteenth highest Rs 1.5285 trillion on 3 September, fourteenth highest Rs 1.5279 trillion on 6 September, fifteenth highest Rs 1.5118 trillion on 2 September, sixteenth highest Rs 1.4991 trillion on 1 September, seventeenth highest Rs 1.3658 trillion on 31 August and eighteenth highest Rs 1.3177 trillion on 30 August respectively. 

GoSL’s FVMP debt has been over Rs one trillion for a record 45 consecutive market days to yesterday due to a lack of revenue. Money market was short for the thirteenth consecutive market day to yesterday thereby causing persistent rate pressure, with market shortfall increasing by 2.43 per cent (Rs 4,941 million) to Rs 208,035 million. Panic buying of riskless, low value Treasury T-Bonds and T Bills in secondary market trading yesterday, rather than invest in the private sector, the engine of economic growth, saw GoSL’s at least theoretical money printing borrowing costs decrease by 0.62 per cent (Rs 243.61 million) to Rs 39,255.71 million. 

Liquidity decreased by Rs 8,133 million (US$ 40.68 million) during trading due to 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 GoSL. Conversions are based on Monday’s administered value of the benchmark ‘spot’ which was Rs 199.23 to the dollar. CBSL, the steward of GoSL debt and foreign reserves, is not transparent in its open market operations data. CBSL deals in ‘spot’. ‘Spot’ trades are settled after two market days from the date of transaction. 

GoSL’s FVMP debt is equivalent to CBSL’s FV T-Bills and T-Bonds holdings. Investments in T-Bills and T-Bonds are riskless because in the event GoSL is unable to honour the repayment of such debt, CBSL is mandated to print demand pull inflationary money and repay that debt. GoSL is the sole and mandated authority to print money. GoSL’s foreign debt servicing commitments are met from the country’s foreign reserves and not from the market, because if met from the market that would cause depreciative pressure on the rupee as Sri Lanka is an import dependent economy.

By Paneetha Ameresekere | Published: 2:00 AM Sep 24 2021

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