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Friday June 14th, 2024

Sri Lanka fails to sell 74-pct of Treasury bills at auction amid BOP deficits

ECONOMYNEXT – Sri Lanka has failed to sell 74 percent of a 45 billion rupee ‘auction’ of Treasury bills conducted under price controls, official data shows as a balance of payments deficit continues and the monetary authorities bill stock topped 824 billion rupees.

The debt office managed to sell more 3-month bills with the one year yield curve continuing to flatten towards to 5.11 percent ceiling placed on 12-month yields.

In 3-month bills 9.0 billion rupees were sold at 5.04 percent, up 03 basis points, after offering 10.0 billion rupees.

In 6-month bills 1.1 billion rupees were sold at 5.08 percent, up 01 basis point after offering 15 billion rupees.

In 12-month bills 1.3 billion rupees were sold at 5.11 percent, the price-controlled yield, after offering 20 billion rupees.

The central bank has been purchasing large volumes of bills by printing money to keep rates down expand reserve money and trigger a balance of payments troubles for over a year under so-called ‘Modern Monetary Theory’.

It is not clear whether the central bank already holds a part of the 45 billion rupees in bills offered.

In the week to March 24, the central bank’s Treasury bill stock rose to 824 billion rupees from 810 as a bill ‘auction’ failed to fully sell the offer amid price controls.

A further 37 billion rupees were borrowed by banks which were short of rupee reserves from its overnight window. Any outright purchase of bills from this auction would ‘validate’ the borrowing into non-borrowed reserves.

The rupee is now at over 200 to the US dollar from around 182 at the beginning of 2020.

In 2020 Sri Lanka ran a balance of payments deficit of 2.3 billion dollars.

Sri Lanka is now under the worst import controls since the 1970s and prices of banned items are soaring giving large profits (rents) to import substitution business also known as the cronies or Mercantilists.

In Sri Lanka there is a strong mercantilist belief that monetary instability in the form of currency falls and BOP deficits are caused by trade rather than monetary policy.

There is also no knowledge that the domestic solvency is required to maintain external solvency.

In 1975 a classical economist had warned against the practice of printing money to buy Treasury bills explaining the link between failed bill sales, the balance of payments and rupee.

In 2021 there is demand for bills, but they are not sold under the price control which has been set at 5.11 percent for this week’s auction.

“The Treasury had to finance its expenditures increasingly by resort to Treasury bills despite the fact that no significant tenders forthcoming to absorb the successive issues of Treasury bills,” an unknown classical economist wrote in 1975 in the central banks’ 25 anniversary publication.

“The responsibility of absorbing the unsubscribed portion of the Treasury bill issue fell on the central bank.

“A major drawback in financing of budget deficits with central bank credit is that while the process involves an expansion in the money supply, it is not necessarily accompanied by an expansion by a corresponding increase in national product.

“Consequently, increased demand emanating from central bank financing of budget deficits had to be satisfied by increased recourse to foreign supplies with resulting pressure on the country’s external payments.

“Thus, though the Government fiscal problem and the balance of payments deficits were two distinct problems, they were nevertheless inter-related, in that the balance of payments deficits and loss of external assets arose partly out of the method by which the government sought to finance its deficits.

“With the continued loss of reserves and the accumulation of external liabilities, the ability of the Central Bank to maintain the international value of the rupee was gradually undermined. ”

In January 2021, the BOP deficit was 690 million US dollars. Sri Lanka’s external drain in 2020 and 2021 is mostly caused by debt repayments after confidence was dented by previous money printing which led to currency collapses and growth shocks.

The current BOP deficit dates back to around August 2019, when money was printed despite running a pegged exchange rate to target an output gap.

Sri Lanka’s central bank constitution however has no growth mandate, only a mandate for price and economic stability. (Colombo/Mar25/2021)

Comments (1)

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  1. Thappan Dong says:

    I feel very sorry for the printing machine. Allow the printing press to take a break before it malfunctions. With the import restrictions its hard to find spare parts 😢

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  1. Thappan Dong says:

    I feel very sorry for the printing machine. Allow the printing press to take a break before it malfunctions. With the import restrictions its hard to find spare parts 😢

Sri Lanka opposition leader proposes Grama Rajya system in addition to 13A

Opposition leader Sajith Premadasa (r) – File photo

ECONOMYNEXT — Sri Lanka opposition leader Sajith Premadasa has proposed devolving power to the village level through a Grama Rajya system in addition to implementing the 13th amendment to the constitution.

Speaking at an event in Jaffna on on Wednesday June 12, Premadasa said all provinces will benefit from the 13th amendment.

“Whatever one’s ethnicity, religion, status or region, this country has citizens of equal level. They’re all Sri Lankan citizens.

“There is no division or grouping.  As we give you and every other province what you should be given through the 13th amendment, we must implement a Grama Rajya system,” Premadasa said, addressing a crowd of school children and other attendees.

Premadasa’s assurance of implementing the 13th amendment has already drawn some protest in the south.

A collective of civil society organisations held a protest outside the office of the leader of the opposition in Colombo on Thursday June 12.

Calling itself the ‘Coalition Against Partition of Sri Lanka’, the group carrying national flags marched up to the opposition leader’s office Thursday June 13 morning and demonstrated against the full implementation of the 13th amendment.

“We arrived here today to hand over a missive against devolving police powers, land powers and judicial powers. If Mr Premadasa is inside, come outside,” Jamuni Kamantha Thushara, Chairman of the Citizen’s Movement Against Fraud, Corruption, and Waste, was seen declaring at the site.

“First of all, tell us what we stand to achieve by dividing and giving away the north and east,” said another protestor, warning against bringing the 13th amendment “anywhere here (paththa palaathe)”.

A police officer at the scene the protestors that a secretary to the opposition leader was ready to accept their letter.

“In Kilonochchi, he says the 13th amendment will be implemented. The votes in the north are going to be decisive this election. To win those votes, President Ranil Wickremesinghe, Sajith and Anura Kumara Dissanayake all say they will implement the 13th. We will not allow this country to be divided into nine pieces,” said Thushara.

Ven Balangoda Kassapa Thero, who was arrested on June 06 during a protest against the new Electricity Act, was also seen at Thursday’s protest. The Buddhist monk requested for a debate with Premadasa on the matter of the 13th amendment. (Colombo/Jun12/2024)

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Sri Lanka rupee closes flat at 303.85/95 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed broadly flat at 303.85/95 to the US dollar on Thursday, from 303.80/304.00 to the dollar the previous day, dealers said. Bond yields were down.

A bond maturing on 15.12.2026 closed at 10.00/30 percent, down from 10.20/40 percent.

A bond maturing on 15.10.2027 closed at 10.60/75 percent.

A bond maturing on 01.07.2028 closed at 11.00/15 percent, down from 11.15/40 percent.

A bond maturing on 15.09.2029 closed at 11.80/85 percent.

A bond maturing on 15.05.2030 closed at 11.85/12.05 percent, down from 11.90/12.05 percent.

A bond maturing on 01.10.2032 closed stable at 11.95/12.15 percent. (Colombo/Jun13/2024)

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Sri Lanka sells Rs295bn in 2027 to 2031 bonds

ECONOMYNEXT – Sri Lanka has sold 295 billion rupees in 2027, 2029 and 2031 bonds, data from the state debt office showed.

The debt office sold an offered 60 billion rupees of 15 October 2027 at an average yield of 10.30 percent.

All offered 125 billion rupees of 15 September 2029 bonds were sold at 11.00 percent.

All 110 billion rupees offered of 01 December 2031 bonds were sold at 12.00 percent. (Colombo/May13/2024)

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