Jan 03, Colombo: Sri Lanka's Central Bank says prudent public debt management is one of the highest priorities this year and will take several measures towards enhancing the security, efficiency and transparency in debt management operations.
Presenting the Central Bank's Road Map for monetary and financial sector policies for 2018 and beyond on Wednesday, the Governor of Central Bank Dr. Indrajit Coomaraswamy said the managing a very large debt stock, while maintaining a proper mix between domestic and foreign financing is a significant challenge and to break away from a potentially vicious cycle of debt, the Central Bank has made prudent debt management a bank-wide strategic priority in its mission to ensure debt sustainability.
He pointed out that the Central Bank is responsible for raising, managing and servicing of government debt and carries out its functions with the objective of ensuring that the government’s financing requirements are met at the lowest possible cost in a timely manner, while ensuring the sustainability of debt obtained on behalf of the government.
The Governor said in 2018, the Central Bank will continue to work towards enhancing the security, efficiency and transparency in public debt management further.
Subject to the enactment of the Liability Management Act, in early 2018, liability management measures will be executed in order to improve the underlying risk profile of the public debt stock.
Most importantly, the Central Bank will take all steps necessary in the medium-term to establish a credible term structure of interest rates enabling to build up a long-term yield curve, while also smoothing the structure of debt to help reduce debt vulnerabilities.
Dr. Coomaraswamy noted that Sri Lanka had a clean and unblemished track record with regard to debt repayment in the past. "This must be continued and every effort will be made to do so," he added.
Similar to Treasury bonds, the Bank will also take measures to introduce a new primary issuance system for Treasury bills to further improve transparency and efficiency of government borrowings from the domestic market.
The Bank proposes to establish an Electronic Trading Platform (ETP) and a Central Counter Party (CCP) arrangement along with the required legal reforms iIn order to deepen and broaden the secondary market for government securities.
"Through this arrangement, we will establish a mechanism to disseminate information on debt instruments in the secondary market with a view to enhancing transparency and eliminating the risk of imperfect information among the agents in the market," the Governor said.
"In addition, we will take measures to increase the efficiency and effectiveness of settlement for investors by way of facilitating the Euroclearing of government securities," he added.
According to the Central Bank Governor, the government has a clear development and reform plan set for the medium-term. In order to aid this development process, the Central Bank, on behalf of the government, will continue to tap commercial sources of relatively low cost funds from abroad as a source of development finance within the broader parameters of the Medium-Term Debt Management Strategy (MTDS).
He said the Central Bank expects the government to continue its fiscal consolidation measures, which will support us to pursue our policies towards macroeconomic stability.