Public Debt Management
In terms of Section 113 of the Monetary Law Act, the Central Bank of Sri Lanka (CBSL) is responsible for the management of the public debt as the Agent of the Government. Accordingly, the Public Debt Department (PDD) of the CBSL on behalf of the Government issues debt instruments and handles all matters relating to servicing the domestic and foreign debt of the Government .The Ministry of Finance handles the matters relating to obtaining loans from the foreign sources.
The objective of debt management is to ensure that the government’s financing needs are met at the lowest possible cost consistent with a prudent degree of risk, and developing and strengthening the government securities market, while enhancing efficiency and maintaining stability. Although the strategic objective to be pursued in government debt management has not been made explicit by any law in Sri Lanka, it is implicitly understood that debt management should be carried out in such a way as to:
1. Minimize the direct and indirect cost of public debt on a long-term perspective
2. Avoid volatility in debt service cost and guarantee a balanced distribution
3. Prevent an excessive concentration on redemption payments
4. Minimize any type of rollover risk / refinancing risk
5. Promote the efficient functioning of the government securities market
6. Service government debt on time with 100% accuracy
Overview of Public Debt Management Strategy
The domestic debt management strategy is decided by the Domestic Debt Management Committee comprising senior officials of the Ministry of Finance and the CBSL. The Committee meets monthly, and a market based strategy is adopted by considering market conditions, market appetite, monetary developments, inflation, government cash flow needs, the maturity profile, risks in the debt portfolio etc. The annual and monthly borrowing plans that are prepared based on this strategy are implemented by the Front Office of the PDD. The key instruments available for raising resources are Treasury Bills (91,182 and 364 day maturity), Treasury Bonds (2-20 year maturity), and Rupee Loans (3-30 year maturity). The institutional mechanism used to issue government debt securities is the Primary Dealer system. The primary issues are done to the Primary Dealers in government securities appointed by the CBSL through auctions. The auctions are conducted by calling bids through the electronic bidding facility introduced by the CBSL.
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