Public Debt Management 

In terms of Section 113 of the Monetary Law Act, the Central Bank of Sri Lanka (CBSL) is responsible for the management of the public debt as the Agent of the Government. Accordingly, the Public Debt Department (PDD) of the CBSL on behalf of the Government issues debt instruments and handles all matters relating to servicing the domestic and foreign debt of the Government .The Ministry of Finance handles the matters relating to obtaining loans from the foreign sources. 

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: 

1. Minimize the direct and indirect cost of public debt on a long-term perspective

2. Avoid volatility in debt service cost and guarantee a balanced distribution 

3. Prevent an excessive concentration on redemption payments

4. Minimize any type of rollover risk / refinancing risk 

5. Promote the efficient functioning of the government securities market

6. Service government debt on time with 100% accuracy

Overview of Public Debt Management Strategy

The domestic debt management strategy is decided by the Domestic Debt Management Committee comprising senior officials of the Ministry of Finance and the CBSL. The Committee meets monthly, and a market based strategy is adopted by considering market conditions, market appetite, monetary developments, inflation, government cash flow needs, the maturity profile, 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). The institutional mechanism used to issue government debt securities is the Primary Dealer system. The primary issues are done to the Primary Dealers in government securities appointed by the CBSL through auctions. The auctions are conducted by calling bids through the electronic bidding facility introduced by the CBSL.

The domestic debt management strategy mainly focuses on:

(a) 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 a title registry for government securities which is known as the Central Depository System (CDS) and ensure all government securities transactions are recorded in the CDS with 100% accuracy.

(c) Servicing of debt obligations, both domestic and foreign, on time.

(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 to facilitate the public debt management and maintaining and upgrading the same.

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 a Scripless Securities Settlement System (SSSS) and a Real Time Gross Settlement System (RTGS). The customer interest is ensured by maintaining all records relating to trading of government securities in an electronic title registry named the Central Depository System (CDS). The settlement of funds through SSSS and RTGS is expected to enhance the volume of transactions and market efficiency and reduce the cost of borrowing in the long run.

Accordingly, envisaged Medium-Term Debt Management Strategy for 2019 – 2023 can be downloaded from here.

Primary Dealer (PD) system

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 15 Primary Dealers are engaged in these activities. To enhance the financial system stability by minimizing the market risk exposure, PDs were permitted to diversify their activities subject to certain limitations, since 02 December 2009. The CBSL issues necessary directions, formulates policies and guidelines and the Supervision of Non-Bank Financial Institutions (SNBIFI) Department conducts on-site supervision and off-site surveillance  of PDs to strengthen and maintain the stability of the PD system.

Maintaining Debt Portfolio Information

All foreign debt records, including disbursements and service obligations, are maintained by the External Resources Department of the Ministry of Finance in a database developed by the Commonwealth Secretariat, known as the "Commonwealth Secretariat - Debt Recording and Management System" (CS-DRMS). The information relating to domestic debt is maintained by the CBSL in the CDS and other secure databases. 

Information on the debt portfolio is disseminated to the general public and market participants weekly, monthly and annually.

Foreign Investments in TBills and TBonds

In order to broaden the investor base, Treasury bill and Treasury bond market was opened to foreign investors, and to Sri Lankan Diaspora working/living abroad subject to a ceiling of  10.0 per cent  of the outstanding Treasury Bills and  10.0 per cent of Treasury Bond stock separately.