“Public Debt Management Bureau to relieve CB from handling bonds”
With reference to the article titled “Public Debt Management Bureau to relieve CB from handling bonds” published in the Business Times last week, the Central Bank of Sri Lanka (CB) has sent the following response which expands on the role of proposed Public Debt Management Bureau:
“The framework for a single debt management agency in Sri Lanka was necessitated by the existing institutional arrangement where debt management responsibilities are split between the CB and the Ministry of Finance (MoF). As per the existing arrangements, the CB is responsible for all domestic government debt securities issuance, both rupee and FX denominated, and in practice leads the process for formulation of the debt management strategy in collaboration with the MoF. CB also plays a key role in overseeing the issuance of international sovereign bonds on behalf of the government and is now entrusted with the responsibilities for liability management activities. The External Resources Department (ERD) of the MoF is responsible for foreign loans other than debt securities from commercial, multilateral and bilateral lenders and agencies.
Treasury Operations Department (TOD) of the MoF is responsible for borrowings from banks and cash management. TOD, together with Public Enterprise Department of the MoF, manages the issuance of guarantees and the on-lending of borrowed funds to state owned enterprises.
International organisations, assisting in the process for institutionalising a centralised, systematic and coordinated arrangement for debt management practices in Sri Lanka, acknowledge that although the existing practice functions relatively well in the country, further enhancement is possible through the proposed reforms. In this connection, consolidating fragmented debt management functions into a single unit has been recognised as an important step in further fine tuning the trade-off between costs and risks aspects of the public debt portfolio. The consolidation of debt management function has reached broader consensus among policy authorities for a considerable time.
Separation of the debt management function from the CB would enable minimising possible conflicts of interests between monetary and fiscal policies. At a time when the CB is moving towards an inflation-targeting framework, with proposed amendments to the Monetary Law Act, where the focus is centered on monetary policy, a separate debt management arrangement is timely. This would enable the authorities to arrive at debt management decisions independently.
A single office for debt management also supports a central data arrangement to provide faster inputs for debt management related decision-making and harmonize debt recording systems currently available across fragmented agencies. Comprehensive legislation governing public debt management to meet the modern-day requirements of financial markets and the economy will also follow with the changes.
The above priorities support the establishment of a public debt management bureau by recognising the evolution of debt dynamics in Sri Lanka. It will further strengthen the effectiveness of many measures already introduced to improve debt management practices in line with technological advancement and required transparency considerations amidst challenges of both unique domestic conditions and external factors. The proposed arrangement is expected to use synergies of both the CB and the MoF over the medium-term. The proposed public debt management bureau reports and is accountable to the MoF with significant operational autonomy.”