The Sri Lankan Government’s domestic debt stock has passed the $ 50 billion mark after the first six months of 2023, with an increase of 28% during the period, as the Government continues to borrow from the domestic market with a premium attached until external debt restructuring is completed, a market analyst has said.
Speaking to The Daily Morning Business, Softlogic Stockbrokers Co-Head of Research Raynal Wickremeratne said that the Sri Lanka Government will have to borrow from the domestic market with a premium attached, as there is no option to raise funds through other means until the completion of the external debt restructuring.
He said that there was initially a risk premium attached due to the expected domestic debt restructuring (DDR), which then came off with the domestic debt optimisation (DDO) and economic developments, but added that currently there is a premium attached due to the delay in completing the external debt restructuring.
He noted that this is why Treasury Bill rates tend to fluctuate in certain weeks and have not come down below 10%, although inflation is at 4%.
In addition to inflation, the policy rate reduction of 450 basis points (Standing Deposit Facility Rate at 11% and Standing Lending Facility Rate at 12%), and the reduction of Statutory Reserve Ratio (SRR) for all rupee deposit liabilities of banks (LCBs) by 200 basis points to 2%, has only pushed the three-month Treasury Bill rate to hover around 17-19%.
The three-month Treasury Bill rate, which was at 19.90% at the beginning of August, went down to 17.55% before coming back up to 18.48% by the end of the month.
The overall government debt has increased from $ 79.5 billion, as of the end of 2022, to $ 91.4 billion by the end of June 2023, with over $ 51 billion in domestic debt. The domestic debt stood at $ 40.1 billion at the beginning of the year.
Wickremeratne said that until Sri Lanka has some foreign financing source and tax collection increases, domestic debt is going to be the only source of borrowing for the Government to meet its requirements.
“Sri Lanka will have to get as much as possible from the (Treasury Bill) auction,” he added.
According to Central Bank Governor Dr. Nandalal Weerasinghe, Sri Lanka expects to complete the external debt restructuring by October or November this year, following the first review of the International Monetary Fund (IMF) programme.