ECONOMYNEXT – Sri Lanka’s finance ministry was left with excess cash in February 2015 allowing its overdraft to be slashed and treasury bills retired when the controversial bond auction took place, a top Treasury official told a commission of inquiry.
There was no sudden requirement for cash when settlement of bonds were made on March 02, Deputy Treasury Secretary Sajith Attygalle said.
Earlier, claims had been made that more bonds than advertised were sold on February 27 , 2015 under the direction of the then Central Bank Governor Arjuna Mahendran despite objections of central bankers overseeing the bond auction, to meet a sudden cash requirement.
A presidential commission of inquiry was hearing evidence relating to a bond auction on February 27, where ten billion rupees of bonds were sold after offering only a billion rupees of 30-year bonds.
The allegedly rigged auction saw yields soaring and secondary bond markets ground to a halt.
Most of the bonds were bought by Perpetual Treasuries, a firm connected to Mahendran’s son-in-law, Arjun Aloysius.
Perpetual Treasuries later dumped billions of rupees of bonds bought at several auctions on the Employment Provident Fund, state-run NSB and Sri Lanka Insurance at higher prices, the commission was told earlier.
State solicitors asked Attygalle whether there was a sudden cash requirement for 75 billion rupees at the time. He said as far as he knew there was no such requirement.
Usually the cash requirements for a particular month was communicated to the Public Debt Department as an estimate, during the previous month. A final statement was prepared at the end of the month based on actual revenues and expenses.
The Treasury always tried to meet monthly expenditures with revenue and cover debt service with borrowings, he said.
There was no cash shortage in January 2015 and some Treasury bills had also been retired, Attygalle said.
In February 2015 also there was no cash shortfall, Attygalle said.
Responding to questions from Justice Prasanna Jayawardene, he said there was a process to be followed if there was a sudden cash requirement, but it did not involve the Finance Minister directly telling the Governor of the Central Bank.
Any additional cash requirement was conveyed by the Treasury Operations Department to the Public Debt Department which sold bonds on behalf of the Treasury. In some months of 2015 such deviations occurred.
If there was a revenue shortfall or sudden expense the Treasury first tried to delay some payments, for the next months, after paying items like pensions and salaries which could not be avoided, he said.
If more money was needed, the Treasury would overdraw from the Bank of Ceylon or the People’s Bank, Attygalle said.
Other option was to sell Treasury bills, get the central bank to issue treasury bills, sell Treasury bonds, or Sri Lanka Development Bonds after an official communication to the public debt department.
Deviations did occur in some months, he said.
In February 2015, actual revenues had been 96.6 billion rupees, which was higher than estimated.
Excess cash available in February had allowed the Treasury to slash its bank overdraft with the Bank of Ceylon and People’s Bank from 180.78 billion rupees to 172.6 billion rupees, Attygalle told the commission.
Evidence given to the commission showed that Perpetual Treasuries had used Bank of Ceylon cash to pay for the bonds it got at high yields from the February 2015 auction
As far has he was aware, no government department or agency had requested additional cash suddenly, Attygalle said.
Attygalle said he knew of no past occasion when a finance minister had directly asked a governor money for a sudden cash need. (Colombo/July18/2017)