CB’s Medium-term Debt Management Strategy – Utter failure
- Singed by RHS Samaratunga, Secretary to the Treasury, and Indrajith Coomarswamy, Governor, CB, on 05 April 2019 valid for 2019-2023. As the document is still in the CB Website, it has been effective until the present time.
- Developed the Medium-Term Debt Management Strategy (MTDS) with the assistance of the International Monetary Fund and World Bank in 2018, in order to minimize the country’s vulnerability to any domestic and external risks. Foreign exchange and rollover risk were identified as the key debt portfolio risks for Sri Lanka. Therefore, the MTDS is focused on containing the foreign currency debt as a share of total debt, improving the average time to maturity (ATM) of the foreign currency debt portfolio, and limiting the debt maturing in 1 year by end-2023.
- Providing a plan towards satisfying the financing needs of the Government of Sri Lanka, while reducing the debt level to more sustainable levels over time.
- Main objectives of ensuring the government’s financing needs are met at the lowest possible cost consistent with a prudent degree of risk, while developing and strengthening the domestic government securities market.
- Foreign debt as a share of GDP is expected to decline from 45.1 per cent at end 2018 to 38.5 per cent by end 2023 under the MTDS, a drop by 6.6 per cent.
- The MTDS will be supported by the recently enacted Active Liability Management Act (ALMA).
- All parties including the IMF, World Bank, CB and the Treasury have accepted that public debt stock is not sustainable despite the above plan developed by them.
- Foreign debt has been defaulted since 12 April 2022.
- Both domestic debt and foreign debt are now in the process of restructuring causing immense risks the financial systema and real economy.
- All medium-term debt instruments and markets stated in the plan have been lost.
- The government is now funded by short-term Treasury bills and monetary financing reached at unsustainable level.
- This shows the extent of the CB’s transparency and efficiency in public debt management.
- The present CB Governor as the then Senior Deputy Governor would have involved in the design of this MTDS as it was assisted by the IMF and World Bank.
- Overall, there is no controversy that the current economic crisis suffered by the general public is the outcome of the gross negligence and failure of the CB in managing the public debt in a sustainable manner. That has caused a failure of the Parliament also in control of public finance under the Constitution.
- Therefore, an independent inquiry into the CB’s MTDS and debt crisis is necessary if the government wishes to be transparent and accountable to the public.
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