PDMS focuses on risk management

This year, the country’s Public Debt Management Strategy (PDMS) will focus on effective implementation of risk management techniques and scenario models to operationalise the strategy.

According to the Public Debt Management in Sri Lanka 2008 report, which was launched last week, the debt management strategy will also focus on diversifying the PD system and strengthening the regulatory framework for PDs.

Systematically assessing public debt management performance through a set of indicators, mobilizing external commercial recourses through non-conventional external markets, ensuring that the bulk of new Treasury bond issues on long-term maturities are some other areas that this strategy will focus on.

The report also said the country’s borrowing strategy in 2009 has been formulated focusing on raising funds for the government at a reasonable cost and maintaining risks of the public debt portfolio at a prudent level.

The Effective decision making on the proper borrowing mix from domestic and foreign sources, type of debt instruments, maturity structure and coupon rate for different maturities to develop comprehensive borrowing plan for the year is essential.

Borrowing through the short-term debt instruments such as Treasury Bills will be limited as much as possible this year to lower the refinancing risk.

However a continued liquidity shortage experienced in the domestic rupee market and an increased demand for Treasury bonds in the 2-3 year maturity segment in 2008 also need to be considered, the report said. Treasury bonds are expected to be the main marketable instrument for raising funds from the domestic rupee sources in 2009.

It is proposed to mobilize Rs.464 billion (book value) through Treasury bonds to the maturity segment of three years and above.

In addition, Rs.20 billion is to be raised by attracting foreign investments into the primary bond market considering the prevailing low interest rates in the international financial market.

Total amortization and interest payments on rupee loans this year are estimated at Rs.34.4 billion.

Considering the low investor preference for rupee loans, due to non-tradable nature of this instrument, it is expected to phase out the rupee loans gradually. As the value of maturing rupee loans is small, the issue of rupee loans will be maintained at zero level this year as well, the report further stated.

US dollar denomination amortization payments on SLDBs during this year amounted to US$75.3 million. In addition, interest payments for existing SLDBs and FCBUs amount to US$79.1 million.

As the ongoing global financial crisis is expected to continue this year, issuance of the new SLDB is very unlikely.

Therefore, the SLDB issuing programme is to be limited to US$500 million in order to avoid the upward pressure on the domestic forex market report said.