Outstanding public debt tops Rs.17tn

Total debt owed by the Sri Lankan government to domestic and foreign sources together eclipsed Rs.17 trillion in September and had continued to climb through October, though the country had settled more foreign debt than it had two years ago reflecting the depreciation impact coming from foreign exchange and rupee borrowings made by the government during period. 

The data through October, the latest available on fiscal performance, showed that the total outstanding public debt had risen by over Rs.2.2 trillion, of which Rs.1.7 had come from domestic debt as Central Bank financed the budget deficit through its liquidity, in a style similar to Quantitative Easing (QE) in the West. 

The governments around the world opened their fiscal spending taps and global central banks including Sri Lanka’s Central Bank cut interest rates to rock bottom levels and bought government bills and bonds, and other corporate securities to backstop the financial markets from a potential liquidity crunch when the global economy came to a complete standstill from March 2020 onwards with the virus spread. 

But now the same central banks, sans the People’s Bank of China, are reversing their course and the United States Federal Reserve has said it would resort to faster rate hikes starting from March and would begin the run off from the balance sheet which grew to US$ 9.0 trillion, doubling from two years ago. 

By the end of October, the government held Rs.10.8 trillion worth domestic debt, of which Rs.2.2 trillion were Treasury bills and Rs.6.6 trillion bonds.

The rupee value of the total outstanding foreign debt was at Rs.6.5 trillion despite recording, “a net repayment of Rs. 142.2 billion during the period from January to October 2021 compared to a net repayment of Rs. 352.2 billion recorded in the corresponding period of 2020,” the Central Bank said. 

This is due to the depreciation impact coming from the rupee as the rupee lost around 7 percent value in 2021 against the US dollar. 

During the first three weeks of 2022, the value of the rupee declined by 1.1 percent against the US dollar.