Government defends proposal to raise Treasury bill ceiling by Rs.1tn

• By Nishel Fernando

The government defended the proposal to raise the short-term Treasury bill ceiling by Rs.1 trillion, given the prevailing high market yields on the longer-tenure Treasury bonds, due to the uncertainty prevailing over domestic debt restructuring.  

Issuing a media release yesterday, Finance State Minister Ranjith Siyambalapitya pointed out that it’s more advantageous to borrow funds from the Treasury, as bond yields remain elevated amid demand.

Finance State Minister Shehan Semasinghe noted that the Treasury bill ceiling must be raised by Rs.1 trillion, as the demand for bonds had declined and as a result, the interest rate for bonds had climbed to 28 percent.

Earlier this month, the Cabinet approved a proposal to increase the Treasury bill ceiling to Rs.6 trillion, from the current Rs.5 trillion maximum limit.

The total outstanding Treasury bill stock stood at Rs.4.63 trillion as of end-March.

For 2023, Parliament has approved the Rs.4.979 trillion gross borrowing limit, which consists of Rs.3.526 trillion from domestic sources and Rs.1.45 trillion from foreign sources.

The proposal was also approved by the Committee on Public Finance (COPF) during a meeting held this week. However, it was criticised by the Opposition MPs in Parliament yesterday.

The COPF also discussed possible situations that could arise until the domestic debt is restructured. 

According to the Central Bank, the proposed domestic debt optimisation operation would only involve T-bills held by it, while the treatment on Treasury bonds will be considered with a mechanism in place to minimise the impact on banks and preserve financial stability.

According to the IMF Staff Report, the government was originally expected to make an announcement on the coverage and parameters of the external and domestic debt operations before end-April this year. However, the government is now expected to announce a debt restructuring strategy within this month.  Meanwhile, an IMF staff mission, as part of an interim visit, is currently in Sri Lanka, ahead of the first review of the programme scheduled for the end of this year.

While welcoming the IMF delegation, Siyambalapitya stressed that a close relationship and mutual understanding with the IMF is critical to meet the targets set in the IMF programme.

The IMF’s first review is due in September, based on the June 2023 data.