CBSL likely to be biggest victim of DDO

• Adjustment will reflect in the Balance Sheet with depleted and negative capital requiring recapitalisation

The Central Bank of Sri Lanka (CBSL) is likely to be the biggest victim of the Domestic Debt Optimisation (DDO) approved by the Cabinet of Ministers at a special meeting on Wednesday. 

The CBSL itself admitted that the impact of this adjustment will reflect in the Balance Sheet with depleted and negative capital.

“Recapitalisation may be needed to mitigate its negative equity’s adverse impact on CBSL’s credibility and independence,” CBSL Governor Dr. Nandalal Weerasinghe said in his presentation to the Cabinet of Ministers.

As per the proposed DDO, the CBSL holdings of Treasury bill will be converted to Treasury 

Bonds. According to CBSL this will help to reduce gross financing needs.

CBSL holds Rs. 2.5 trillion worth of Treasury Bills or 62.4% of the total accounting for 17.1% of domestic debt.

To be implemented in Phase 2 of DDO, the CBSL›s Treasury Bills and provisional advances worth Rs. 236 billion to the Government will be converted into Treasury Bonds. (see box for the process)