Public Debt Management
Overview
In terms of Section 113 of the Monetary Law Act, the public debt management function is entrusted to the Central Bank of Sri Lanka (CBSL). Accordingly, the Public Debt Department (PDD) of the CBSL acts as the agent of the Government in handling domestic debt, while several other government institutions deal with activities related to foreign debt.
The objective of debt management is to ensure that the government’s financing needs are met at the lowest possible cost consistent with a prudent degree of risk, and developing and strengthening the government securities market, while enhancing efficiency and maintaining stability. Although the
strategic objective to be pursued in government debt management has not been made explicit by any law in Sri Lanka, it is implicitly understood that debt management should be carried out in such a way as to:
- Minimise the direct and indirect cost of public debt on a long-term perspective
- Avoid volatility in debt service cost and guarantee a balanced distribution
- Prevent an excessive concentration on redemptions
- Minimise any type of rollover risk / refinancing risk
- Promote an efficient functioning of the government securities market
- Service government debt on time with 100% accuracy
Overview of Public Debt Management Strategy
The domestic debt management strategy mainly focuses on:
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Raising adequate resources to meet the cash flow needs of the government at the minimum cost by developing a broad funding and investor base |
| b) |
Maintaining Title Registry (CDS) and ensure all government securities transactions are recorded in the CDS with 100% accuracy |
| c) |
Servicing of debt obligations on time, both domestic and foreign |
| d) |
Maintaining the risk of the debt portfolio at an acceptable level, while assuring proper trade off between short term and long term debt |
| e) |
Promoting a well functioning debt securities market through building up of a long term yield curve and benchmark securities, supply of adequate securities to the market and strengthening the institutional and legal framework |
| f) |
Advising the Ministry of Finance of the appropriate debt management strategy taking into account the prevailing macroeconomic and market conditions |
| g) |
Developing the technological infrastructure relating to the public debt management and maintaining and upgrading the same |
The domestic debt management strategy is decided by the Domestic Debt Management Committee comprising senior officials of both the Ministry of Finance and the CBSL. The Committee meets on a monthly basis and a market based strategy is adopted by considering market conditions, market appetite, monetary developments, inflation, government cash flow needs, the maturity profile and risks in the debt portfolio etc. The annual and monthly borrowing plans that are prepared based on this strategy are implemented by the Front Office of the PDD. The key instruments available for raising resources are Treasury Bills (91,182 and 364 day maturity), Treasury Bonds (2-20 year maturity) and Rupee Loans (3-30 year-maturity). Most recently, Inflation linked Index Bonds have also been introduced to the market. The institutional mechanism used to raise resources is a Primary Dealer network and auctions are conducted electronically.
Currently, the PDD services around 656 foreign loans and a domestic debt portfolio of Rs.2,129 billion. An effective mechanism is in place to monitor and service payment obligations on time. The annual and monthly debt forecasts are monitored by the Back Office staff and payment obligations are checked and approved by an internal committee. Since 2004, settlement and service of domestic debt obligations are made through the Scripless Securities Settlement System (SSSS) and Real Time Gross Settlement System (RTGS) and the customer's safety is ensured by maintaining all records in an electronic title registry named the Central Depository System (CDS). The settlement of funds through SSSS and RTGS would enhance the volume of transactions and market efficiency and reduce the cost of borrowing in the long run.
A dedicated Primary Dealer (PD) system was introduced in 2000 with the objective of expanding the government securities market and raising resources at the lowest cost and expanding and broad basing the government securities market. Currently, 11 Primary Dealers are engaged in these activities. The Supervision Unit of the PDD issues necessary directions formulates policies and guidelines and conducts on-site and off-site supervision of PDs to strengthen and maintain the stability of the PD system.
All foreign debt records, including disbursements and service obligations, are maintained in the Commonwealth Secretariat developed database known as the "Debt Recording and Management System" (CS-DRMS) and information relating to domestic debt is maintained in an in-house developed computer based debt recording system. Information on the debt portfolio is disseminated to the general public and market participants weekly, monthly and annually.
In order to broaden the investor base Treasury bill and Treasury bond market was opened for foreign investors, and Sri Lankan diaspora working/living abroad up to a 10 per cent limit of outstanding Treasury bill and Treasury bond stock.
Reforms that are planned to be undertaken in the near future in the area of debt management are, a debt consolidation programme, the formulation of debt management guidelines, the implementation of a risk management framework and the introduction of a domestic debt data module in the CS-DRMS.
| Government Securities in Sri Lanka |
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| Market Information |
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| Secondary Market |
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| Outstanding Government Debt Stock |
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Investment in Government Securities
If an investor wants to buy a Treasury Bill or a Treasury Bond, it can be purchased either from auctions in the primary market through a designated Primary Dealer on specified dates or
from the secondary market through Primary Dealers, Commercial Banks or the Joint Lead Managers in the case of Sri Lankan Diaspora business on any week day.
Choosing the Government securities you want to buy
- Rupee denominated securities
Treasury Bills - Available to Sri Lankan citizens, Sri Lankan diaspora living/working abroad and foreign investors.
Treasury Bills for Foreign Investors >> |
| Treasury Bonds - Conventional Treasury Bonds - Available to Sri Lankan citizens, Sri Lankan diaspora living/working abroad and foreign investors and foreign investors. Treasury Bonds for Foreign Investors >> |
| Inflation-linked Bonds - Available only to Sri Lankan citizens |
- Foreign currency denominated securities
Sri Lanka Development Bonds
more >> |
Primary market
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Information on auctions for Treasury Bills and Treasury Bonds are normally announced in the leading newspapers at least two days prior to the auction date. Treasury Bond series available for foreigners are announced by the Public Debt Department via e-mail to all participants in the Central Depositary System. In the case of Treasury Bills, newspaper advertisements are published on every Monday and the auctions are held on Wednesdays. Bids are accepted through the fully automated online bidding system.
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- Treasury Bills are issued weekly, while 3-4 Treasury Bond auctions are held every month based on the Government's cash requirement.
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Secondary market
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An investor can either hold a tradable security until maturity or sell in the secondary market prior to maturity at the current market price. Investors can also buy tradable securities already issued to the market by the Central Bank of Sri Lanka. Primary Dealers/Commercial Banks quote buying and selling prices of Treasury Bills, Treasury Bonds daily for different maturities. Investors can shop around and bargain to obtain attractive market rates for these securities.
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- Sri Lankan Government debt securities are scripless and the securities transfer is done on an electronic basis. In the Scripless Securities Settlement System (SSSS) transfer instructions are carried out on a trade-by-trade basis, with the transfer of securities and the transfer of funds for payment taking place simultaneously.
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Primary Dealers
Primary Dealers are institutions appointed by the Central Bank of Sri Lanka for marketing government securities in the secondary market. Primary Dealers are also responsible for supporting the primary auction and are the major participants in the competitive bidding process. Primary Dealers are required to provide liquidity in the secondary market by quoting bid and offer yields for government securities.
List of Primary Dealers >>
Legislative Framework >>
Publications
Public Debt Management 2006 / 2007 / 2008
SSSS Manual
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