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Government's domestic borrowings in the calendar year to date passed the ignominious Rs one trillion mark at yesterday's trading, when it raised Rs 19,928 million from the market by selling Treasury (T) Bills at a T-Bill primary auction yesterday.
Due to the tight liquidity situation, as predicted by this newspaper yesterday, the weighted average yields (WAYs) of T-Bills rose, with Central Bank (CB) keeping a tab on even sharper increases, by buying lower quantities than originally earmarked.
For instance, though CB earlier indicated to the market that it plans to borrow Rs 8,000 million under the benchmark one year (364 day) T Bill maturity, CB borrowed only a tenth of that number, i.e. Rs 800 million only, thereby controlling the rise of this WAY by a mere three basis points (bps) to 6.31% at yesterday's auction.
Similarly, though CB, previously earmarked to borrow a total of Rs 20,000 million by selling T Bills to the market, it reduced this figure by Rs 72 million to Rs 19,928 million, to prevent an even higher rise in yields. Meanwhile, the WAY of 91 and 182-day (three and six months) maturities increased by eight and five bps each to 6.22% and 6.31% respectively at yesterday's primary T Bill auction.
Nevertheless, with this borrowing, it has taken government's total borrowings, by selling T Bills and T Bonds to the market to Rs 1,015,828 million or Rs 1.02 trillion in the calendar year to date. Such borrowings are a 108.33% or a Rs 528,220 million increase over similar borrowings made by the previous regime in the corresponding period last year.
Such increased borrowings are to meet the government's higher expenditure needs to keep election pledges, in the backdrop of sluggish revenue growth. Nevertheless, heavy government borrowings cause upward pressure on interest rates.
These borrowings include borrowings made to meet maturing debt.
Courtesy: Ceylon Financial Times 16 July 2016