Public debt tops Rs. 5 trillion

Despite being within approved limits set by the Parliament, public debt has topped the Rs. 5 trillion mark as per latest Central Bank data.

Total outstanding Government debt by end July amounted to Rs. 5,019 billion or Rs. 5.01 trillion as against Rs. 4.87 trillion as at end of the first half of this year, reflecting an increase of Rs. 140 billion.

In comparison to end 2010, the increase by end July was 9.4%. A year ago i.e. in July 2010, public debt was Rs. 4.64 trillion, reflecting an increase of Rs. 555 billion or 12.4%.

The rising public debt has been a concern with the Opposition warning that indebtedness of Sri Lankans is increasing at an alarming rate. However, the Government has been countering allegations citing that public debt as a percentage of GDP was much lower in comparison to five years ago.

Foreign debt continues to rise, at 45% of the total as at July in comparison to 42% a year ago. Total foreign debt amounted to Rs. 2.26 trillion, as against Rs. 1.88 trillion in July 2010.

In August the Government given what it described as attractive rates, opted to borrow $ 166 million via Sri Lanka Development Bonds, $ 41 million above the amount offered originally via the issue.

The original move was to issue SLDBs of $ 75 million in 3-year tenure and $ 50 million in 4-year tenure to eligible investors for subscription at a rate of US$ 6 month LIBOR plus a margin to be determined through competitive bidding.

The Central Bank said as some investors had expressed their willingness to invest $ 55 million for a five-year tenure, the Government had decided to accept $ 81 million in 3-year maturity and $ 30 million in 4-year maturity at the market determined rates of US$ 6 month LIBOR + 365 bps (weighted average margin) and 6-month LIBOR + 375 bps (weighted average margin) respectively, and $ 55 million in 5-year maturity at a rate of 6-month LIBOR + 390 bps.

           When the bids were decided on 11 August, the US $ 6 month LIBOR rate was 0.44%.

Both foreign and local commercial banks and institutional investors subscribed bids at the auction. 

As at end July, domestic debt figure crossed the Rs. 2.75 trillion mark, up from Rs. 2.74 trillion in June and Rs. 2.57 trillion a year ago.

The biggest chunk in domestic debt is Treasury Bonds amounting to Rs. 1.75 trillion, up from Rs. 1.56 trillion a year earlier followed by Treasury Bills amounting to Rs. 614.5 million, as against Rs. 577 billion in July last year.

Whilst public debt soars, cumulative net credit to the Government in August shot up by 11% to Rs. 773 billion up from Rs. 697 billion a year ago. The high 11% growth was against 5% increase in July and a 2% contraction a year ago.

Credit to corporations rose by 31% to Rs. 141.5 billion from Rs. 108 billion in August 2010. However in July 2011 the figure was higher at Rs. 143 billion.

In its post October monetary policy review statement, the Central Bank admitted that the high rate of expansion in broad money supply (M2b) continued, recording a year-on-year growth of 20.6% in August 2011. The year-on-year increase of credit to the private sector in August was 34.1%. Credit extended to the private sector has been increasing by around Rs.36 billion on average per month in 2011 reflecting continued expansion of economic activity.

“The increase in net credit to the Government by the banking sector also contributed to the monetary expansion. However, the growth of money supply is expected to moderate in the period ahead given the decline in excess liquidity in the money market,” the Central Bank assured.