Money Printing Rises to Rs 2.86 Trillion

Government of Sri Lanka’s (GoSL’s) non-demand pull inflationary face value money printing (FVMP) debt increased by Rs 2,742 million today due to a sustained lack of revenue, thereby upping its FVMP debt as a whole by 0.10 per cent to Rs 2,857,629.27 million (Rs 2.8576 trillion). Meanwhile, market’s net shortfall increased by 18.71 per cent (Rs 27,292 million) to Rs 173,172 million today.

Led by the settlement of foreign debt servicing commitments to multilateral donor agencies; that saw the country’s foreign reserves bleed by US$ 98.19 million (Rs 30,034 million) today (Thursday 25 May). Conversions are based on Tuesday’s (23 May) administered ‘spot’ value which was Rs 305.88 to the US dollar.

GoSL’s direct MP borrowing costs (BCs) sharply decreased for the fourth consecutive market day to today, this time by 2.48 per cent (Rs 1,675.78 million) to Rs 65,959.91 million due to buying pressure of Treasury (T) Bills and T -Bonds in secondary market trading attracted by high yields offered by the same, but at the expense of denying lending to the private sector, the engine of growth.

Swaps between the GoSL and CBSL are foreign reserves neutral. CBSL’s open market operations (OMO) statistics from where the above figures are extrapolated; lacks transparency. MP, coupled with being the steward of the country’s foreign reserves and of its debt is the exclusive prerogative of the CBSL. GoSL’s FVMP debt is equivalent to the totality of CBSL’s T Bill and T Bond holdings.

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 repayments and foreign debt as a whole in rupee terms. Issuing of T Bills and T Bonds is a popular way GoSL raises money domestically to meet its local commitments. Investing in T Bills and T Bonds is generally considered as being riskless, because, in the event GoSL is unable to repay such debt, CBSL is normally mandated to print demand pull inflationary money and repay such creditors.