• SLDB holding drops to Rs. 272.8 bn after settlement 
• Rupee settlements come as a part of interim debt policy adopted after default
• Treasury bond stock increases by Rs. 123 bn

The Central Bank of Sri Lanka (CBSL) settled about $ 193 million (Rs. 70.3 billion) worth of Sri Lanka Development Bonds (SLDBs) owned by commercial banks in rupees last week, mainly through Treasury Bonds, The Daily Morning Business learnt. 

According to the weekly report released by the CBSL, the stock of SLDBs was reduced to Rs 272.8 billion by the week ending last Wednesday (8), from Rs. 343.2 billion a week earlier.

Speaking to us, an official from a leading private bank confirmed that CBSL settled Rs 70.3 billion worth of SLDBs to major holders such as commercial banks through Treasury Bonds while smallholders were repaid in rupees.

The Daily Morning Business earlier learnt that CBSL has provided Licensed Commercial Banks (LCBs) with the option of having their dollar-denominated SLDBs settled in rupees through the issuance of Treasury Bonds or simply repaying the dollar equivalent in rupees due to the prevailing shortage of foreign exchange.

According to banking sector sources, LCBs prefer dollar-denominated SLDBs to be settled by paying the dollar equivalent in rupees instead of settling it through Treasury Bonds, as the latter is associated with heavy market risks and would be included in a domestic debt restructuring process if the Government of Sri Lanka decides to engage in such.

Although SLDBs are dollar-denominated, they are not considered foreign debt by the International Monetary Fund (IMF); and although the Government is able to reduce its foreign currency debt stock by using the two options of settlement given to SLDBs, settling them in Treasury Bonds does not actually contribute to reducing the overall domestic debt.

The Treasury Bond stock increased by Rs 123.3 billion by the week ending last Wednesday (8).

Sri Lanka Government started to settle SLDBs in rupees as a  part of the Interim Debt Policy adopted after the suspension of foreign debt servicing last April. Since then, the stock of SLDBs has come down from Rs 603.1 billion to Rs 272.8 billion as of last Wednesday.