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Public Debt Management in Sri Lanka

The public debt management function is entrusted to the Central Bank of Sri Lanka (CBSL). Accordingly, the Public Debt Department (PDD) of the CBSL acts as the agent of the Government in handling domestic debt, while several other government institutions deal with activities related to foreign debt.
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: 
  • Minimize the direct and indirect cost of public debt on a long-term perspective
  • Avoid volatility in debt service cost and guarantee a balanced distribution
  • Prevent an excessive concentration on redemptions
  • Minimize any type of rollover risk / refinancing risk
  • Promote an efficient functioning of the government securities market
  • Service government debt on time with 100% accuracy 
The domestic debt management strategy is decided by the Domestic Debt Management Committee comprising senior officials of both the Ministry of Finance and the CBSL. The Committee meets on a monthly basis and a market based strategy is adopted by considering market conditions, market appetite, monetary developments, inflation, government cash flow needs, the maturity profile and risks in the debt portfolio etc.
Currently, the PDD services around 656 foreign loans and a domestic debt portfolio of Rs.2, 129 billion. An effective mechanism is in place to monitor and service payment obligations on time. The annual and monthly debt forecasts are monitored by the Back Office staff and payment obligations are checked and approved by an internal committee. Since 2004, settlement and service of domestic debt obligations are made through the Scripless Securities Settlement System (SSSS) and Real Time Gross Settlement System (RTGS) and the customer's safety is ensured by maintaining all records in an electronic title registry named the Central Depository System (CDS). The settlement of funds through SSSS and RTGS would enhance the volume of transactions and market efficiency and reduce the cost of borrowing in the long run.
A dedicated Primary Dealer (PD) system was introduced in 2000 with the objective of expanding the government securities market and raising resources at the lowest cost and expanding and broad basing the government securities market. Currently, 11 Primary Dealers are engaged in these activities. The Supervision Unit of the PDD issues necessary directions formulates policies and guidelines and conducts on-site and off-site supervision of PDs to strengthen and maintain the stability of the PD system.
All foreign debt records, including disbursements and service obligations, are maintained in the Commonwealth Secretariat developed database known as the "Debt Recording and Management System" (CS-DRMS) and information relating to domestic debt is maintained in an in-house developed computer based debt recording system. Information on the debt portfolio is disseminated to the general public and market participants weekly, monthly and annually.
Reforms that are planned to be undertaken in the near future in the area of debt management are, a debt consolidation programme, the formulation of debt management guidelines, the implementation of a risk management framework and the introduction of a domestic debt data module .

Last Updated on: 19-05-2010

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