Despite tightening of monetary policy and curtailing money printing, the Central Bank is to raise Rs 98 billion in the New Year through an auction on January 04 2023.
This was a result of the Finance Ministry’s proposal to raise the government borrowing ceiling to over Rs. 4.5 trillion from the present Rs.3.84 trillion.
The Government is now resorting to more short term borrowings by issuing treasury bills at a time where it has to pay loan installment and interest exceeding the income, official sources said.
The interest rate of treasury bills has been increased to over 32 percent at present amidst yields in Sri Lanka Treasury bills were falling in active trade as the market and investors awaited for clarity on the 2023 budget, dealers said
The proposal to Parliament to raise the state credit ceiling by Rs. 663 billion to Rs 4.51 trillion was passed in parliament midst the drop in money printing by 7.8 percent in 2022 compared to 2021 and bills were printed to meet essential recurrent expenditure.
In addition, a proposal was also passed to raise the limit for Treasury Bills from Rs. 4 trillion to Rs. 5 trillion.
The CB has no option other than the raising of reserve money to Rs. 2.4 trillion from the present level of Rs.1.4 trillion, finance ministry sources said.
This will result in massive monetary expansion in 2 -3 years’ time unless corrective measures are taken to raise revenue and increase foreign reserves by implementing economic reforms in accordance with commitments made to the International Monetary fund (IMF).
The Central Bank has to accommodate fiscal deficits by purchasing Treasury bills and bonds and providing temporary advances to the Government.
It will end up as Net Credit to the Government (NCG) on the asset side of the CB’s balance sheet causing a rise in the reserve money exerting pressure on the aggregate money supply and the overall liquidity level of the economy.
The government’s daily revenue is set to increase to Rs.9.5 billion in 2023 from Rs.6.53 billion in 2022 while expenditure is expected to rise to Rs.21.60 billion this year from Rs.17.05 billion lasts year, Finance Ministry estimates showed.
As per the budget 2023 revenue and expenditure estimates volume 01 , the government’s expenditure is estimated at Rs.5.82 trillion but the sum of Rs.3.80 trillion worth of Treasury Bills that should be repaid this year has not been included under the expenditure heading.
Therefore the actual expenditure is expected to be Rs.9.62 trillion. The IMF will deal with this Treasury bill amount when they consider the country’s debt structure this year.
The government is expected to collect Rs 3.42 trillion out of which Rs.915 billion would be from income tax and the balance Rs.2.50 trillion from other taxes. Raising such a massive amount from taxes is unrealistic under the present economic crisis, several economic experts and tax consultants said.
