SL’s nine-month public debt rises by almost Rs.2tn

• Total public debt stock stands at Rs.17 trillion; bulk consists of rupee debt as govt. leaned heavily on domestic borrowings

The total outstanding public debt has increased slightly under Rs.2.0 trillion during the first nine months, as the cash-strapped government had to borrow more since the country was hit with multiple waves of coronavirus since April this year, hobbling the economy. 

According to the latest data released by the Finance Ministry and published by the Central Bank, the country’s total debt stock had ballooned to Rs.17.05 trillion by the end of October 2021, from Rs.15.12 trillion at the end of 2020, rising by Rs.1,934.5 billion during the nine months. 

This is the most in any nine-month period but the good news is nearly 80 percent of the new debt was raised in rupees, as the country has been settling its foreign currency debt fell due during both 2020 and 2021, largely utilising its foreign currency reserves, which brought the country closer to a debt default. 

While the rupee debt took the lion’s share, it also caused the current troubles in the external sector, as they hit the balance of payment by way of outflows through imports, since the Central Bank had to provide dollars for such rupees until they stopped providing any more convertibility when reserves fell to rock bottom. 

Sri Lanka’s foreign currency reserves fell to US $ 1.6 billion by end-November, barley enough for a month’s imports before they were suddenly propelled to US $ 3.1 billion on December 29, with some inflows, which the Central Bank is yet to officially reveal.

Meanwhile, the prospects of the US $ 1.9 billion worth of currency swaps and bilateral term loans with India reached a step closer this week, after the country’s Petroleum Minister said that an agreement would be signed in January with India to lease out 99 oil tanks in Trincomalee. 

Further, a joint venture company was also set up this week by Ceylon Petroleum Corporation, with the name of Trinco Petroleum Terminal Limited, to undertake operations by both parties.

Meanwhile, the rupee debt, which predominately came by way of treasury bills and bonds and the majority of which came through printed money, also caused other excesses in the economy by way of sending the prices though the roof. 

The Colombo inflation hit 9.9 percent in November, with food prices also surging by 17.5 percent over the same month last year. 

According to the Treasury data, the total domestic debt has risen by Rs.1,533.4 billion in the nine months to Rs.10,598.5 billion. 

Meanwhile, the total outstanding foreign debt rose by a modest Rs.401 billion in the nine months, all of which came from the depreciation of the rupee and by the end of September 2021, the total foreign debt stock was at rupee equivalent of 6,453.2 billion. 

The Sri Lankan rupee has depreciated by about 7.2 percent against the dollar so far during the year. 

This could be one reason why the authorities are hesitant to float the currency, as its fallout on the outstanding foreign currency debt will be enormous.  Economists opine that the Central Bank should let either the currency or the interest rates to absorb the shock, as both cannot be controlled at once.