28 December 2023 03:46 am Views - 1436
This newfound flexibility empowers the government to strategically determine the amount to raise from the market.
Stating as to why the Central Bank, on behalf of the government, raises less than what it offers via bill and bond auctions, Central Bank Governor Dr. Nandalal Weerasinghe said it is because now the government has relatively more flexibility over its finances, due to enhanced revenue flows.
“The government has built up this buffer for them to be able to make short-term debt service payments,” Dr. Weerasinghe said.
It appears that the higher revenues made via raising taxes since last year and cutting expenditures have given the Treasury more room to determine how much to raise via bill and bond auctions and at what rates.
Further, the government also appears to have cut its reliance on overdrafts from state banks for its urgent short-term funding needs.
The continuous dependence of the government on funds from the state banks has significantly burdened the latter’s balance sheets over an extended period.
As a result of enhanced inflows and the implementation of rigorous fiscal and structural reforms, the government has successfully transformed its overdrafts with banks into positive cash balances.
“Without relying on overdraft facilities from the two state banks, the government instead has deposits now. That I think is a good development,” Dr. Weerasinghe said.
Improved fiscal conditions and the large amounts already received and slated to receive from multilateral agencies for budget support are expected to further bring down the requirement for funds for the government from the market. This in turn would leave more money available for the private sector, thereby helping to quicken the ease in yields and the interest rates in the weeks and months to come, helping to relax the financial conditions further.