Developing a Deep and Liquid Bond Market - Experience of Sri Lanka

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Developing a Deep and Liquid Bond Market - Experience of Sri Lanka. Presentation by K.G.D.D.Dheerasinghe Assistant to the Governor Central Bank of Sri Lanka. Development of the Bond Market Events of Significance. - PowerPoint PPT Presentation

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  • Developing a Deep and Liquid Bond Market - Experience of Sri LankaPresentation by K.G.D.D.DheerasingheAssistant to the GovernorCentral Bank of Sri Lanka

  • Development of the Bond MarketEvents of Significance1923 - Issue of loans commenced under the Colonial Treasury Bill Ordinance by Crown Agents in U.K.1937 - Issue of Rupee Loans commenced under RSSO No.7 of 19371941 - Issue of Treasury Bills commenced under LTBO (Chapter 287)1950 - Public debt management was vested with the Central Bank under the Monetary Law Act.1981 - A secondary market window was opened for Treasury Bills by the Central Bank. 1986 - Weekly Treasury Bill auctions commenced1992 - Primary Dealers were appointed.

  • Development of the Bond Market contd...1993 - Repo window for Treasury Bills was introduced by the CBSL.1994 - Primary Dealer system was recognised.1995 - Non-competitive bidding at primary auctions was phased out.1995 - Reverse Repo window was introduced by the CBSL.RSSO, LTBO and MLA were amended to enable scripless issue of Treasury Bills and Treasury Bonds.1997 - Issue of Treasury Bonds commenced.2000 - Dedicated Primary Dealers were appointed2000 - Primary Dealer supervision commenced.

  • Development of the Bond Market contd...2001 - US Dollar denominated Sri Lanka Development Bonds were issued.2002 - Fiscal Management Responsibility Act was enacted.2003 - Issue of 10,15 & 20 year Treasury Bonds commenced.2003 - Bloomberg Bond Trading System for Primary Dealers was introduced.2004 - RSSO,LTBO & MLA were amended to enable the trading of scripless securities.Scripless Securities Settlement System (SSSS) and Central Depository System (CDS) commenced operations.

  • Legal Framework(a) Appropriation Act - Authority for annual borrowing limit(b) Local Treasury Bills Ordinance - Issuence of T-Bills(c ) Registered Stock & Securities Ordinance - Issuence of T-Bonds & Rupee Loans(d) Foreign Loans Act - Borrowing from foreign sources(e) Monetary Law Act - Debt management as a function of Central Bank(f) Fiscal Management Responsibility Act - Guidelines and debt sustainability

  • Organizational FrameworkPARLIAMENT - authority to borrow and accountable to the public MINISTER OF FINANACE - delegates authority to Central Bank MINISTRY OF FINANCE / TREASURY-Principal - authority & accountability - Contracting non-commercial foreign borrowing CENTRAL BANK - Agent- Iisuence and debt service PRIMARY DEALERS- market makingBANKS, PENSION/PROVIDENT/INSURANCE FUNDS - Investors and Secondary Market Dealers

  • Implementation of the Government Securities ProgrammePreparation of the borrowing calendarRelease of information to the market Regular meeting of the Debt Management Committee ( weekly)Regular meeting with Primary Dealers (weekly)Issuance of domestic debt: e.g. Auction, Tap, Placements

  • Organization of Public Debt DepartmentFront Office - market/public relations, primary issuance, market information, investor awareness

    Middle Office - research inputs, risk analysis, issuance techniques, product development, database

    Back Office - payment and settlement, servicing of concessional foreign debt, CS-DRMS

    Support Services- human resources, training, IT support, maintenance.

  • Budget Deficit and Borrowing Requirement (as a % of GDP) 1997 2000 2003Total Revenue 18.5 16.6 15.7Total Expenditure 26.4 26.7 23.7Overall Deficit - 7.9 - 9.9 - 8.0Finanacing 7.9 9.9 8.0 Foreign 1.9 0.4 2.9 Domestic 3.4 9.4 4.5 Other/Privatization 2.5 0.1 0.6

  • Sheet1

    Table 1

    Composition of Tradeble & Non Tradeble debt in domestic debt

    199720002003

    value (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1. Tradable debt

    1.1 Treasury Bonds10,0002.74204,12433.85483,10750.81

    (medium - long term)

    1.2 Treasury Bills114,99631.55134,99622.39219,29523.06

    (short term 91-364 days)

    2. Non Tradable

    Rupee Loans239,47565.70263,88843.76248,41426.13

    Total364,471100.00603,008100.00950,816100.00

    Source : PDD, Central Bank of Sri Lanka

    Table 2

    Distribution of Bonds by issues

    1997-9820002002-03

    value (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1 Government10,00078.94125,32298.39214,79798.63

    2 Corporate2,66821.062,0561.612,9791.37

    Total12,668100.00127,378100.00217,776100.00

    Source : PDD, Central Bank of Sri Lanka & CSE.

    Note. Corporate debt issues are for 1998, 2000 and 2002.

    Table 3

    Ownership of Government Securities

    199720002003

    Ownervalue (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1. Domestic Debt

    1.1 Banking Sector

    Central Bank19,7702.5997,7788.0244,5872.39

    Commercial Banks80,76610.57101,2528.31183,8249.86

    1.2 Non-Bank Sector

    Savings Institutions63,0288.2587,2637.16138,9397.45

    Sinking Funds1000.011000.011000.01

    Insurance Funds9,2921.2218,9691.5624,8281.33

    Provident and Pension Funds144,40618.90218,61517.94333,28917.88

    Official Funds15,4382.0224,6402.0240,7392.19

    Private Business and Individuals48,6386.37120,1169.86246,20913.21

    1.3 Other6,3020.827,9270.657,4530.40

    2. Foreign Debt376,33149.25542,04044.48843,88245.28

    Total764,071100.001,218,700100.001,863,850100.00

    Source : PDD, Central Bank of Sri Lanka

    Table 4

    Transaction Numbers & Volumes of the SSS System

    PeriodNumber of TransactionsVolume (Rs. Mil)

    February - 20045,696481,719.01

    March - 200414,037503,271.56

    April - 200411,500523,349.47

    01-10, May - 200464091,086.42

    Total31,8731,599,426.46

    Source : CDS, PDD, Central Bank of Sri Lanka

    Table 5

    Growth of Depository Accounts of CDS

    PeriodNo.of A/Cs

    February - 200410,893

    March - 200412,483

    April - 200413,781

    May - 200413,846

    Source : CDS, PDD, Central Bank of Sri Lanka

    Table 6

    Domestic Financing of Fiscal Deficit(Rs. billions)

    (Rs. billions)199720002003

    By Instrument39.6118.579.7

    Long term Bonds1090.6137.1

    Short Term Bills-4.76.114.9

    Non-tradable Securities33.51.8-39.3

    US$ denominated Bonds---15.2

    Other Loans-9.515.8-18.3

    Long term Bonds

    By Source39.6118.579.7

    Bank Borrowing-2.256.5-20.9

    Non-Bank Borrowing41.862100.7

    Source : Central Bank of Sri Lanka

    Table7

    Government Domestic Debt Indicators

    199720002003

    Govt. Debt/GDP85.896.9105.9

    Domestic Debt/GDP43.653.857.9

    Total Debt Service/GDP9.41419.6

    Domestic Debt Service/ Govt. Revenue38.667.9108

    Domestic Debt Service/ Govt. Expenditure23.431.646.9

    Domestic Interest/GDP5.54.96.4

    Domestic Interest/ Govt. Current Expenditure2724.539.9

    Source : Central Bank of Sri Lanka

    Sheet2

    Sheet3

  • Sheet1

    Table 1

    Composition of Tradeble & Non Tradeble debt in domestic debt

    199720002003

    value (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1. Tradable debt

    1.1 Treasury Bonds10,0002.74204,12433.85483,10750.81

    (medium - long term)

    1.2 Treasury Bills114,99631.55134,99622.39219,29523.06

    (short term 91-364 days)

    2. Non Tradable

    Rupee Loans239,47565.70263,88843.76248,41426.13

    Total364,471100.00603,008100.00950,816100.00

    Source : PDD, Central Bank of Sri Lanka

    Table 2

    Distribution of Bonds by Issuer

    1997-9820002002-03

    value (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1 Government10,00078.94125,32298.39214,79798.63

    2 Corporate2,66821.062,0561.612,9791.37

    Total12,668100.00127,378100.00217,776100.00

    Source : PDD, Central Bank of Sri Lanka & CSE.

    Note. Corporate debt issues are for 1998, 2000 and 2002.

    Table 3

    Ownership of Government Securities

    199720002003

    Ownervalue (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1. Domestic Debt

    1.1 Banking Sector

    Central Bank19,7702.5997,7788.0244,5872.39

    Commercial Banks80,76610.57101,2528.31183,8249.86

    1.2 Non-Bank Sector

    Savings Institutions63,0288.2587,2637.16138,9397.45

    Sinking Funds1000.011000.011000.01

    Insurance Funds9,2921.2218,9691.5624,8281.33

    Provident and Pension Funds144,40618.90218,61517.94333,28917.88

    Official Funds15,4382.0224,6402.0240,7392.19

    Private Business and Individuals48,6386.37120,1169.86246,20913.21

    1.3 Other6,3020.827,9270.657,4530.40

    2. Foreign Debt376,33149.25542,04044.48843,88245.28

    Total764,071100.001,218,700100.001,863,850100.00

    Source : PDD, Central Bank of Sri Lanka

    Table 4

    Transaction Numbers & Volumes of the SSS System

    PeriodNumber of TransactionsVolume (Rs. Mil)

    February - 20045,696481,719.01

    March - 200414,037503,271.56

    April - 200411,500523,349.47

    01-10, May - 200464091,086.42

    Total31,8731,599,426.46

    Source : CDS, PDD, Central Bank of Sri Lanka

    Table 5

    Growth of Depository Accounts of CDS

    PeriodNo.of A/Cs

    February - 200410,893

    March - 200412,483

    April - 200413,781

    May - 200413,846

    Source : CDS, PDD, Central Bank of Sri Lanka

    Table 6

    Domestic Financing of Fiscal Deficit(Rs. billions)

    (Rs. billions)199720002003

    By Instrument39.6118.579.7

    Long term Bonds1090.6137.1

    Short Term Bills-4.76.114.9

    Non-tradable Securities33.51.8-39.3

    US$ denominated Bonds---15.2

    Other Loans-9.515.8-18.3

    Long term Bonds

    By Source39.6118.579.7

    Bank Borrowing-2.256.5-20.9

    Non-Bank Borrowing41.862100.7

    Source : Central Bank of Sri Lanka

    Table7

    Government Domestic Debt Indicators

    199720002003

    Govt. Debt/GDP85.896.9105.9

    Domestic Debt/GDP43.653.857.9

    Total Debt Service/GDP9.41419.6

    Domestic Debt Service/ Govt. Revenue38.667.9108

    Domestic Debt Service/ Govt. Expenditure23.431.646.9

    Domestic Interest/GDP5.54.96.4

    Domestic Interest/ Govt. Current Expenditure2724.539.9

    Source : Central Bank of Sri Lanka

    Sheet2

    Sheet3

  • Sheet1

    Table 1

    Composition of Tradeble & Non Tradeble debt in domestic debt

    199720002003

    value (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1. Tradable debt

    1.1 Treasury Bonds10,0002.74204,12433.85483,10750.81

    (medium - long term)

    1.2 Treasury Bills114,99631.55134,99622.39219,29523.06

    (short term 91-364 days)

    2. Non Tradable

    Rupee Loans239,47565.70263,88843.76248,41426.13

    Total364,471100.00603,008100.00950,816100.00

    Source : PDD, Central Bank of Sri Lanka

    Table 2

    Distribution of Bonds by issues

    1997-9820002002-03

    value (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1 Government10,00078.94125,32298.39214,79798.63

    2 Corporate2,66821.062,0561.612,9791.37

    Total12,668100.00127,378100.00217,776100.00

    Source : PDD, Central Bank of Sri Lanka & CSE.

    Note. Corporate debt issues are for 1998, 2000 and 2002.

    Table 3

    Ownership of Government Securities

    199720002003

    Ownervalue (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1. Domestic Debt

    1.1 Banking Sector

    Central Bank19,7702.5997,7788.0244,5872.39

    Commercial Banks80,76610.57101,2528.31183,8249.86

    1.2 Non-Bank Sector

    Savings Institutions63,0288.2587,2637.16138,9397.45

    Sinking Funds1000.011000.011000.01

    Insurance Funds9,2921.2218,9691.5624,8281.33

    Provident and Pension Funds144,40618.90218,61517.94333,28917.88

    Official Funds15,4382.0224,6402.0240,7392.19

    Private Business and Individuals48,6386.37120,1169.86246,20913.21

    1.3 Other6,3020.827,9270.657,4530.40

    2. Foreign Debt376,33149.25542,04044.48843,88245.28

    Total764,071100.001,218,700100.001,863,850100.00

    Source : PDD, Central Bank of Sri Lanka

    Table 4

    Transaction Numbers & Volumes of the SSS System

    PeriodNumber of TransactionsVolume (Rs. Mil)

    February - 20045,696481,719.01

    March - 200414,037503,271.56

    April - 200411,500523,349.47

    01-10, May - 200464091,086.42

    Total31,8731,599,426.46

    Source : CDS, PDD, Central Bank of Sri Lanka

    Table 5

    Growth of Depository Accounts of CDS

    PeriodNo.of A/Cs

    February - 200410,893

    March - 200412,483

    April - 200413,781

    May - 200413,846

    Source : CDS, PDD, Central Bank of Sri Lanka

    Table 6

    Domestic Financing of Fiscal Deficit(Rs. billions)

    (Rs. billions)199720002003

    By Instrument39.6118.579.7

    Long term Bonds1090.6137.1

    Short Term Bills-4.76.114.9

    Non-tradable Securities33.51.8-39.3

    US$ denominated Bonds---15.2

    Other Loans-9.515.8-18.3

    Long term Bonds

    By Source39.6118.579.7

    Bank Borrowing-2.256.5-20.9

    Non-Bank Borrowing41.862100.7

    Source : Central Bank of Sri Lanka

    Table7

    Government Domestic Debt Indicators

    199720002003

    Govt. Debt/GDP85.896.9105.9

    Domestic Debt/GDP43.653.857.9

    Total Debt Service/GDP9.41419.6

    Domestic Debt Service/ Govt. Revenue38.667.9108

    Domestic Debt Service/ Govt. Expenditure23.431.646.9

    Domestic Interest/GDP5.54.96.4

    Domestic Interest/ Govt. Current Expenditure2724.539.9

    Source : Central Bank of Sri Lanka

    Sheet2

    Sheet3

  • Sheet1

    Table 1

    Composition of Tradeble & Non Tradeble debt in domestic debt

    199720002003

    value (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1. Tradable debt

    1.1 Treasury Bonds10,0002.74204,12433.85483,10750.81

    (medium - long term)

    1.2 Treasury Bills114,99631.55134,99622.39219,29523.06

    (short term 91-364 days)

    2. Non Tradable

    Rupee Loans239,47565.70263,88843.76248,41426.13

    Total364,471100.00603,008100.00950,816100.00

    Source : PDD, Central Bank of Sri Lanka

    Table 2

    Distribution of Bonds by issues

    1997-9820002002-03

    value (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1 Government10,00078.94125,32298.39214,79798.63

    2 Corporate2,66821.062,0561.612,9791.37

    Total12,668100.00127,378100.00217,776100.00

    Source : PDD, Central Bank of Sri Lanka & CSE.

    Note. Corporate debt issues are for 1998, 2000 and 2002.

    Table 3

    Ownership of Government Securities

    199720002003

    Ownervalue (Rs. Mil)%value (Rs. Mil)%value (Rs. Mil)%

    1. Domestic Debt

    1.1 Banking Sector

    Central Bank19,7702.5997,7788.0244,5872.39

    Commercial Banks80,76610.57101,2528.31183,8249.86

    1.2 Non-Bank Sector

    Savings Institutions63,0288.2587,2637.16138,9397.45

    Sinking Funds1000.011000.011000.01

    Insurance Funds9,2921.2218,9691.5624,8281.33

    Provident and Pension Funds144,40618.90218,61517.94333,28917.88

    Official Funds15,4382.0224,6402.0240,7392.19

    Private Business and Individuals48,6386.37120,1169.86246,20913.21

    1.3 Other6,3020.827,9270.657,4530.40

    2. Foreign Debt376,33149.25542,04044.48843,88245.28

    Total764,071100.001,218,700100.001,863,850100.00

    Source : PDD, Central Bank of Sri Lanka

    Table 4

    Transaction Numbers & Volumes of the SSS System

    PeriodNumber of TransactionsVolume (Rs. Mil)

    February - 20045,696481,719.01

    March - 200414,037503,271.56

    April - 200411,500523,349.47

    01-10, May - 200464091,086.42

    Total31,8731,599,426.46

    Source : CDS, PDD, Central Bank of Sri Lanka

    Table 5

    Growth of Depository Accounts of CDS

    PeriodNo.of A/Cs

    February - 200410,893

    March - 200412,483

    April - 200413,781

    May - 200413,846

    Source : CDS, PDD, Central Bank of Sri Lanka

    Table 6

    Domestic Financing of Fiscal Deficit(Rs. billions)

    199720002003

    By Instrument39.6118.579.7

    Long term Bonds1090.6137.1

    Short Term Bills-4.76.114.9

    Non-tradable Securities33.51.8-39.3

    US$ denominated Bonds---15.2

    Other Loans-9.515.8-18.3

    By Source39.6118.579.7

    Bank Borrowing-2.256.5-20.9

    Non-Bank Borrowing41.862100.7

    Source : Central Bank of Sri Lanka

    Table7

    Government Domestic Debt Indi...