Following the Central Bank’s disclosure last week that it had received a request from the General Treasury to provide liquidity in the amount of Rs.217 billion to finance Ceylon Petroleum Corporation’s (CPC’s) fuel imports, data showed that the Central Bank had issued Rs.107 billion to CPC on Friday.
The government borrowed the amount through a special issuance of Treasury bills to the Central Bank, as the CPC is still experiencing an acute rupee liquidity crunch, on top of the dollar crunch, despite raising the prices of petroleum products to sky-high levels on multiple occasions, using what has now proven to be a controversial pricing formula.
Central Bank Governor Dr. Nandalal Weerasinghe, disclosing the dilemma they are facing between taming skyrocketing consumer prices and providing financing to the government’s urgent financing needs, said monetary financing or money printing is not something they like doing.
“Monetary financing is something neither we nor the Treasury likes to do but under the current context, we are compelled to meet certain requests to meet their exigencies,” said Dr. Weerasinghe.
However, he stated that, unlike in 2020 and 2021, when a massive amount of money was printed to buy dollars from the Central Bank to settle foreign loans and also to make up for the government’s other funding shortages, money printing today is much more restrained.
Due to yield controls, the market only subscribed to a fraction of the Treasury bill auctions until September last year, so the balance had to be purchased by the Central Bank using printed money, which added to the exponential monetary expansion.
However, now the monetary financing happens only when the government runs out of money to pay salaries, pensions and to provide funding to public utilities such CPC and the Ceylon Electricity Board to ensure fuel and electricity supplies.
Dr. Weerasinghe said even in the week before last, the Central Bank provided the Treasury with Rs.18.5 billion through a special bill auction for the same purpose.
Despite the Central Bank’s intentions to reduce its over Rs.2.2 trillion balance sheet, a lack of revenues generated by the government in meeting its expenditure appeared to be delaying the process.
The Central Bank’s total stock of government securities surpassed Rs.2.23 trillion as of last Friday, surpassing Rs.2.0 trillion on June 17.