Tuesday, February 7, 2023

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Sri Lanka’s T-bill sales crash amidst subdued investor sentiment

Sri Lanka’s last quarter borrowing plan via the issuance of treasury bonds and bills to meet recurrent expenditure while cutting down bank borrowings and money printing is in a bind following the recent downward trend in sales in the secondary bill and bond markets, CEOs of banks and dealers confirmed.

The General Manager of a leading bank disclosed that the drop in T-bill sales witnessed at the primary auctions recently was due to the saturation of the market.

He said that there was less participation of banks in T-bill/ bond auctions and currently the market is dominated by individual and institutional investors who were sensitive to the present economic – political uncertainties.

The Treasury is also raising money by selling bonds, often to institutional investors or pension funds.

If the government’s revenue is not adequate to pay for the payments due on bills and bonds issued in the past, then the government will issue new bills and bonds and obtain money to pay them, a senior Finance Ministry official explained.

This rolling-over or refinancing of government debt continues and net new issuance of government securities add to the total government debt, he added.

According to informed official sources, the upcoming bond and bill auctions are unlikely to raise the expected funding for the Treasury as investor sentiment remains dull and most of the participants might stay on the sidelines waiting for the 2023 budget and a change in policy interest rates.

Interest payment on outstanding public debt alone has risen to Rs. 1379 billion and is the single largest recurrent expenditure item absorbing 75 per cent of the tax revenue while leaving 25 per cent of tax revenue for all other expenses.

Total recurrent expenditure is estimated to be Rs. 3620 billion and 98 per cent of it had already been spent by the Government and the Treasury has to find the balance money of around Rs 73 billion via bills or bonds or bank borrowings.

However the sentiment at Tuesday’ s bill auction improved as the total accepted volume increased further to 98.50 per cent of its total offered volume of Rs. 90 billion and against its previous weeks 92.28, according to a market dealer.

Nevertheless the activity for both bill and bonds in the secondary market remained subdued on Tuesday.

The overall activity levels in the secondary bill and bond markets remained subdued while sentiment remained dull as well during the short trading week ending October 28 as most market participants adopted wait and see attitude.

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