CB’s Medium-term Debt Management Strategy – Utter failure

Last night, I saw an interesting document ” Medium-Term Debt Management Strategy (MTDS)” displayed in the CB’s website under Public Debt Management whose link is given below.

https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/20190412_pdd_medium_term_debt_management_strategy_2019_2023.pdf

According to recent response to the media, the CB now operates more transparently than before. In this context, readers will be surprised that how the above document of MTDS is applicable to the current debt management function of the CB.

As the CB will unload this document quietly, readers are invited to peruse it immediately.

A few highlights of the MTDS as presented in the document

• Singed by RHS Samaratunga, Secretary to the Treasury, and Indrajith Coomarswamy, Governor, CB, on 05 April 2019 valid for 2019-2023. As the document is still in the CB Website, it has been effective until the present time.

• Developed the Medium-Term Debt Management Strategy (MTDS) with the assistance of the International Monetary Fund and World Bank in 2018, in order to minimize the country’s vulnerability to any domestic and external risks. Foreign exchange and rollover risk were identified as the key debt portfolio risks for Sri Lanka. Therefore, the MTDS is focused on containing the foreign currency debt as a share of total debt, improving the average time to maturity (ATM) of the foreign currency debt portfolio, and limiting the debt maturing in 1 year by end-2023.

• Providing a plan towards satisfying the financing needs of the Government of Sri Lanka, while reducing the debt level to more sustainable levels over time.

• Main objectives of ensuring the government’s financing needs are met at the lowest possible cost consistent with a prudent degree of risk, while developing and strengthening the domestic government securities market.

• Foreign debt as a share of GDP is expected to decline from 45.1 per cent at end 2018 to 38.5 per cent by end 2023 under the MTDS, a drop by 6.6 per cent.

• The MTDS will be supported by the recently enacted Active Liability Management Act (ALMA).

Present status of debt management

• All parties including the IMF, World Bank, CB and the Treasury have accepted that public debt stock is not sustainable despite the above plan developed by them.

• Foreign debt has been defaulted since 12 April 2022.

• Both domestic debt and foreign debt are now in the process of restructuring causing immense risks the financial systema and real economy.

• All medium-term debt instruments and markets stated in the plan have been lost.

• The government is now funded by short-term Treasury bills and monetary financing reached at unsustainable level.

Concluding Remarks

• This shows the extent of the CB’s transparency and efficiency in public debt management.

• The present CB Governor as the then Senior Deputy Governor would have involved in the design of this MTDS as it was assisted by the IMF and World Bank.

• Overall, there is no controversy that the current economic crisis suffered by the general public is the outcome of the gross negligence and failure of the CB in managing the public debt in a sustainable manner. That has caused a failure of the Parliament also in control of public finance under the Constitution.

• Therefore, an independent inquiry into the CB’s MTDS and debt crisis is necessary if the government wishes to be transparent and accountable to the public.

(This article is released in the interest of participating in the professional dialogue to find out solutions to present economic crisis confronted by the general public consequent to the global Corona pandemic, subsequent economic disruptions and shocks both local and global and policy failures.)

P Samarasiri

Former Deputy Governor, Central Bank of Sri Lanka

(Former Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Former Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Former Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Former Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 10 Economics and Banking Books and a large number of articles published. 

The author holds BA Hons in Economics from University of Colombo, MA in Economics from University of Kansas, USA, and international training exposures in economic management and financial system regulation)

Source: Economy Forward