Led by settlements of Government of Sri Lanka’s (GoSL’s )foreign debt servicing commitments to multilateral donor agencies such as the World Bank, ADB and the IMF, the country’s foreign reserves fell by US$ 73.96 million (Rs 23,656 million during trading yesterday (Tuesday). Conversions are based on last Wednesday’s (12 April) administered ‘spot’ value which was Rs 319.85 to the US dollar. Subsequently, market’s net shortfall increased for the second consecutive market day to yesterday, this time by 4.23 per cent (Rs 11,828 million) to Rs 2,990,336.44 million (Rs 2.9903 trillion) yesterday.
GoSL’s face value money printing (FVMP) debt increased for the third consecutive market day to yesterday (18 April), though yesterday’s increase of Rs 11,828 million being non-demand pull inflationary, nonetheless increasing GoSL’s FVMP debt as a whole by 0.40 per cent to Rs 2,990,336.44 million (Rs 2.9903 trillion) by yesterday.
GoSL’s at least direct, theoretical MP borrowing costs (BCs) steeply decreased by 2.02 per cent (Rs 1,542.97 million) to Rs 74,863.40 million, led by buying pressure of Treasury (T) Bonds and T Bills in secondary market trading yesterday, enticed by high yields offered by those due to even higher inflation, rather than lend to the private sector, the engine of growth.
Meanwhile, 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. Swaps between GoSL and CBSL are foreign reserves neutral.
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.