Government raises borrowing limit to new high for cash flow needs
The Sri Lanka Treasury is running out of options in raising revenue to meet day to day operations and maintain steady cash flow amidst the unusual behaviour in the local financial market and its inability to go for money printing.
Earlier the Central Bank (CB) had the ability to print money as the final trump of raising money for the government‘s recurrent expenditure but following the enactment of a new CB Act and its IMF commitment , the government cannot resort to this practice, official sources said.
Foreign borrowing is also not possible and the last resort is to depend on local borrowings, a high ranking state official attached to policy implementation told the Business Times adding that it has to incur heavy capital cost.
Under this context, the government is compelled to raise the local borrowing ceiling by Rs. 9000 billion to Rs. 13,979 billion from the previous limit of Rs. 4979 million recently, a fact that was also reported in the Sunday Times on July 16.
According to the official figures, the Government’s expenditure was Rs. 4222 billion, but it appears that the public expenditure is expected to rise alarmingly to Rs. 13,222 billion.
The increase in public expenditure sparks speculation of snap Presidential or a general election, but several Treasury officials said that this was inevitable due to revenue collection retardation and heavy welfare spending as well as unforeseen costs etc.
The risk of government’s inadequate income to meet the day-to-day expenditures is clearly indicated in the unusual behaviour of the financial market at present via the ever increasing of treasury bills average yield rates in auctions in last month.
The reason for this was the demand of high rates by primary dealers due to high risks for their investments, financial market sources confirmed.
Following the announcement of domestic debt restructuring on July 1 by the Central Bank, treasury bill yield rate has started to come down rapidly in the first week of this month
At the Treasury bill auction held on July 26 average yield rate for 91 day maturity treasury bills has slightly dropped to 19.96 per cent, 182 maturity bill rate to 17.69 per cent and 364 T-bills to 14.29 per cent.
But the upward momentum is still persisting and this was a very risky situation, several financial market analysts warned.
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