Sri Lanka's Public Debt Reduces to 81.9pct of GDP in 2010

27th April 2011, www.dailynews.lk, By Ravi Ladduwahetty

The Government debt as a percentage of GDP has declined to 81.9 percent in 2010 from 86.2 percent in the previous year due to improvements in fiscal operations, says the Central Bank of Sri Lanka.

Central Bank Deputy Governor Dharma Dheerasinghe told Daily News Business yesterday that higher revenue collection which reduced the borrowing requirement, the reduction in the discount factor (which is the net difference in the book value and the face value of issues and maturities of Treasury bills and Treasury bonds) as a result of declining yield rates in government securities and the appreciation of the rupee vis-a-vis major foreign currencies, as well as higher economic growth contributed to the reduction in the debt to GDP ratio.

In nominal terms, the total outstanding government debt increased by 10.3 percent to Rs. 4,590 billion as at end 2010. As a percentage of GDP domestic debt declined significantly to 45.8 percent of GDP in 2010 from 49.8 percent of GDP in 2009, while foreign debt declined to 36.1 percent of GDP in 2010 from 36.5 percent of GDP in the previous year, he said.

The share of domestic debt in total government debt declined further in 2010 to 56 percent from 58 percent in 2009. Repayment of high cost domestic borrowings with the proceeds of the international sovereign bond and the increase in availability of foreign funds reduced the share of domestic debt in the total debt stock.

The share of medium to long term debt to total domestic debt stock declined marginally to 76 percent in 2010 from 77 percent in the previous year, while 84 percent of medium to long term domestic debt comprised Treasury bonds.

The share of Treasury bills in short term debt increased to 83 percent in 2010 from 79 percent in the previous year.

The outstanding stock of Rupee loans continued to decline to Rs. 88 billion in 2010 from Rs. 112 billion in 2009 due to the repayment and non issuance of Rupee loans during the year, as the debt management strategy has been to move towards more market oriented debt instruments.

Reflecting the increasing reliance on non bank borrowings, the outstanding debt held by the non bank sector increased by 10.5 percent to Rs 1,873.8 billion in 2010.

Accordingly, the outstanding stock of Treasury bills and Treasury bonds held by the non bank sector increased by 19.5 percent and 12 percent, respectively, in 2010.

The EPF and NSB continued to be the major investors in government securities, accounting for 46 percent and 15 percent, respectively of the outstanding debt stock held by the non bank sector, the Deputy Governor said.

The outstanding debt obligations of the government to the domestic banking system declined by 2 percent to Rs 691.7 billion in 2010. The outstanding debt held by the Central Bank declined by Rs. 31.2 billion to Rs. 78.4 billion, while outstanding government debt held by commercial banks increased by Rs. 17.2 billion to Rs. 613.3 billion in 2010. Consequently, the share of banking sector debt in the total domestic debt stock declined to 27 percent in 2010 from 29 percent in 2009.

Retirement of the Central Bank’s holdings of Treasury bills reduced the government debt outstanding to the Central Bank. While, Treasury bill holdings of commercial banks increased by Rs 60 billion to Rs 220 billion, Treasury bond holdings of commercial banks declined by Rs 26 billion to Rs 162 billion, reflecting the appetite of investors for short term instruments.

Further, other outstanding government debt held by commercial banks declined to Rs 230.8 billion in 2010 from Rs 247.5 billion in 2009.