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 PresentationTRANSCRIPT
Developing a Deep and Developing a Deep and Liquid Bond Market -Liquid Bond Market -
Experience of Sri Lanka Experience of Sri Lanka
Presentation by Presentation by
K.G.D.D.DheerasingheK.G.D.D.DheerasingheAssistant to the GovernorAssistant to the GovernorCentral Bank of Sri LankaCentral Bank of Sri Lanka
Development of the Bond MarketDevelopment of the Bond MarketEvents of SignificanceEvents of Significance
1923 - Issue of loans commenced under the Colonial Treasury 1923 - Issue of loans commenced under the Colonial Treasury Bill Ordinance by Crown Agents in U.K.Bill Ordinance by Crown Agents in U.K.
1937 - Issue of Rupee Loans commenced under RSSO No.7 of 1937 - Issue of Rupee Loans commenced under RSSO No.7 of 19371937
1941 - Issue of Treasury Bills commenced under LTBO 1941 - Issue of Treasury Bills commenced under LTBO (Chapter 287)(Chapter 287)
1950 - Public debt management was vested with the Central 1950 - Public debt management was vested with the Central Bank under the Monetary Law Act.Bank under the Monetary Law Act.
1981 - A secondary market window was opened for Treasury 1981 - A secondary market window was opened for Treasury Bills by the Central Bank.Bills by the Central Bank.
1986 - Weekly Treasury Bill auctions commenced1986 - Weekly Treasury Bill auctions commenced 1992 - Primary Dealers were appointed.1992 - Primary Dealers were appointed.
Development of Development of the Bond Market the Bond Market contd...contd...
1993 - Repo window for Treasury Bills was introduced by 1993 - Repo window for Treasury Bills was introduced by the CBSL.the CBSL.
1994 - Primary Dealer system was recognised.1994 - Primary Dealer system was recognised. 1995 - Non-competitive bidding at primary auctions was 1995 - Non-competitive bidding at primary auctions was
phased out.phased out. 1995 - Reverse Repo window was introduced by the CBSL.1995 - Reverse Repo window was introduced by the CBSL. RSSO, LTBO and MLA were amended to enable scripless RSSO, LTBO and MLA were amended to enable scripless
issue of Treasury Bills and Treasury Bonds.issue of Treasury Bills and Treasury Bonds. 1997 - Issue of Treasury Bonds commenced.1997 - Issue of Treasury Bonds commenced. 2000 - Dedicated Primary Dealers were2000 - Dedicated Primary Dealers were appointedappointed 2000 - Primary Dealer supervision commenced.2000 - Primary Dealer supervision commenced.
Development of Development of the Bond Market the Bond Market contd...contd...
2001 - US Dollar denominated Sri Lanka Development Bonds 2001 - US Dollar denominated Sri Lanka Development Bonds were issued.were issued.
2002 - Fiscal Management Responsibility Act was enacted.2002 - Fiscal Management Responsibility Act was enacted. 2003 - Issue of 10,15 & 20 year Treasury Bonds commenced.2003 - Issue of 10,15 & 20 year Treasury Bonds commenced. 2003 - Bloomberg Bond Trading System for Primary Dealers 2003 - Bloomberg Bond Trading System for Primary Dealers
was introduced.was introduced. 2004 - RSSO,LTBO & MLA were amended to enable the 2004 - RSSO,LTBO & MLA were amended to enable the
trading of scripless securities.trading of scripless securities. Scripless Securities Settlement System (SSSS) and Central Scripless Securities Settlement System (SSSS) and Central
Depository System (CDS) commenced operations.Depository System (CDS) commenced operations.
Legal FrameworkLegal Framework
((a) Appropriation Acta) Appropriation Act - Authority for annual borrowing limit- Authority for annual borrowing limit(b) Local Treasury Bills Ordinance(b) Local Treasury Bills Ordinance - Issuence of T-Bills- Issuence of T-Bills(c ) Registered Stock & Securities Ordinance(c ) Registered Stock & Securities Ordinance - Issuence of T-Bonds & Rupee Loans- Issuence of T-Bonds & Rupee Loans(d) Foreign Loans Act(d) Foreign Loans Act - Borrowing from foreign sources- Borrowing from foreign sources(e) Monetary Law Act(e) Monetary Law Act - Debt management as a function of Central - Debt management as a function of Central BankBank(f) Fiscal Management Responsibility Act(f) Fiscal Management Responsibility Act - Guidelines- Guidelines and debt sustainabilityand debt sustainability
Organizational FrameworkOrganizational Framework PARLIAMENTPARLIAMENT - authority to borrow and accountable to the public- authority to borrow and accountable to the public MINISTER OF FINANACEMINISTER OF FINANACE
- - delegates authority to Central Bank delegates authority to Central Bank MINISTRY OF FINANCE / TREASURY-Principal MINISTRY OF FINANCE / TREASURY-Principal - authority & accountability- authority & accountability - Contracting non-commercial foreign borrowing- Contracting non-commercial foreign borrowing CENTRAL BANK - AgentCENTRAL BANK - Agent
- Iisuence and debt service- Iisuence and debt service PRIMARY DEALERSPRIMARY DEALERS
- market making- market making BANKS, PENSION/PROVIDENT/INSURANCE FUNDSBANKS, PENSION/PROVIDENT/INSURANCE FUNDS - Investors and Secondary Market Dealers- Investors and Secondary Market Dealers
Implementation of the Implementation of the Government Securities Government Securities
ProgrammeProgramme Preparation of the borrowing calendarPreparation of the borrowing calendar Release of information to the marketRelease of information to the market Regular meeting of the Debt Management Regular meeting of the Debt Management
Committee ( weekly)Committee ( weekly) Regular meeting with Primary Dealers (weekly)Regular meeting with Primary Dealers (weekly) Issuance of domestic debt: e.g. Auction, Tap, Issuance of domestic debt: e.g. Auction, Tap,
PlacementsPlacements
Organization ofOrganization of Public Debt Department Public Debt Department
Front OfficeFront Office - market/public relations, primary issuance, - market/public relations, primary issuance, market information, investor awarenessmarket information, investor awareness
Middle OfficeMiddle Office - research inputs, risk analysis, issuance - research inputs, risk analysis, issuance techniques, product development, techniques, product development, databasedatabase
Back OfficeBack Office - payment and settlement, servicing of - payment and settlement, servicing of concessional foreign debt, CS-DRMSconcessional foreign debt, CS-DRMS
Support ServicesSupport Services- human resources, training, IT support,- human resources, training, IT support, maintenance.maintenance.
Budget Deficit and Borrowing Budget Deficit and Borrowing Requirement Requirement (as a % of GDP)(as a % of GDP)
19971997 2000 2000 20032003 Total RevenueTotal Revenue 18.5 18.5 16.6 16.6
15.715.7 Total Expenditure 26.4 26.7 23.7Total Expenditure 26.4 26.7 23.7 Overall Deficit - 7.9 - 9.9 - 8.0Overall Deficit - 7.9 - 9.9 - 8.0 Finanacing 7.9 9.9 8.0Finanacing 7.9 9.9 8.0 Foreign 1.9 0.4 2.9Foreign 1.9 0.4 2.9 Domestic 3.4 9.4 4.5Domestic 3.4 9.4 4.5 Other/Privatization 2.5 0.1 0.6Other/Privatization 2.5 0.1 0.6
value (Rs. Mil) % value (Rs. Mil) % value (Rs. Mil) %1. Tradable debt 1.1 Treasury Bonds 10,000 2.74 204,124 33.85 483,107 50.81 (medium - long term) 1.2 Treasury Bills 114,996 31.55 134,996 22.39 219,295 23.06 (short term 91-364 days)2. Non Tradable Rupee Loans 239,475 65.70 263,888 43.76 248,414 26.13
Total 364,471 100.00 603,008 100.00 950,816 100.00
1997 2000 2003Composition of Tradeble & Non Tradeble debt in domestic debt
Source : PDD, Central Bank of Sri Lanka
value (Rs. Mil) % value (Rs. Mil) % value (Rs. Mil) % 1 Government 10,000 78.94 125,322 98.39 214,797 98.63 2 Corporate 2,668 21.06 2,056 1.61 2,979 1.37
Total 12,668 100.00 127,378 100.00 217,776 100.00
Note. Corporate debt issues are for 1998, 2000 and 2002.
2002-03
Distribution of Bonds by Issuer
Source : PDD, Central Bank of Sri Lanka & CSE.
1997-98 2000
Government Domestic Debt Indicators
1997 2000 2003Govt. Debt/GDP 85.8 96.9 105.9Domestic Debt/GDP 43.6 53.8 57.9Total Debt Service/GDP 9.4 14 19.6Domestic Debt Service/ Govt. Revenue 38.6 67.9 108Domestic Debt Service/ Govt. Expenditure 23.4 31.6 46.9Domestic Interest/GDP 5.5 4.9 6.4Domestic Interest/ Govt. Current Expenditure 27 24.5 39.9
Source : Central Bank of Sri Lanka
Domestic Financing of Fiscal Deficit (Rs. billions)
1997 2000 2003By Instrument 39.6 118.5 79.7Long term Bonds 10 90.6 137.1Short Term Bills -4.7 6.1 14.9Non-tradable Securities 33.5 1.8 -39.3US$ denominated Bonds - - -15.2Other Loans -9.5 15.8 -18.3
By Source 39.6 118.5 79.7Bank Borrowing -2.2 56.5 -20.9Non-Bank Borrowing 41.8 62 100.7
Source : Central Bank of Sri Lanka
Owner value (Rs. Mil) % value (Rs. Mil) % value (Rs. Mil) %1. Domestic Debt 1.1 Banking Sector Central Bank 19,770 2.59 97,778 8.02 44,587 2.39 Commercial Banks 80,766 10.57 101,252 8.31 183,824 9.86 1.2 Non-Bank Sector Savings Institutions 63,028 8.25 87,263 7.16 138,939 7.45 Sinking Funds 100 0.01 100 0.01 100 0.01 Insurance Funds 9,292 1.22 18,969 1.56 24,828 1.33 Provident and Pension Funds 144,406 18.90 218,615 17.94 333,289 17.88 Official Funds 15,438 2.02 24,640 2.02 40,739 2.19 Private Business and Individuals 48,638 6.37 120,116 9.86 246,209 13.21 1.3 Other 6,302 0.82 7,927 0.65 7,453 0.402. Foreign Debt 376,331 49.25 542,040 44.48 843,882 45.28
Total 764,071 100.00 1,218,700 100.00 1,863,850 100.00
Source : PDD, Central Bank of Sri Lanka
Ownership of Government Securities
1997 2000 2003
Figure 1Policy Interest Rates and Call Money
Averate Rate
468
1012141618
Per c
ent
RepoReverse RepoCall Avg.
Secondary Market -Secondary Market -
- Participants- Participants - Ownership Structure- Ownership Structure - Taxation Policy- Taxation Policy - Yield Curve- Yield Curve
Government SecuritiesSecondary Market Yield Curve
7.00%7.25%7.50%7.75%8.00%8.25%8.50%8.75%9.00%9.25%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
25/11/0331/12/0309/06/04
Bond Market InfrastructureBond Market Infrastructure Online Electronic Bidding SystemOnline Electronic Bidding System Real Time Gross Settlement SystemReal Time Gross Settlement System Scripless Securities Settlement Scripless Securities Settlement
SystemSystem Bloomberg Bond Trading SystemBloomberg Bond Trading System Colombo Stock Exchange - DEX Colombo Stock Exchange - DEX
SystemSystem
Transaction Numbers and Transaction Numbers and Volumes of the SSS Volumes of the SSS SystemSystem
PeriodPeriod Number of Number of TransactioTransactionsns
VolumeVolume(Rs. Mil)(Rs. Mil)
February –February –20042004
5,6965,696 481,719.01481,719.01
March –March –20042004
14,03714,037 503,271.56503,271.56
April – April – 20042004
11,50011,500 523,349.47523,349.47
May – May – 2004 2004
11,83311,833 598,636.56598,636.56
TotalTotal 43,06643,066 2,106,976.62,106,976.600
Source:CDS,PDD, Central Bank of Sri Lanka
Growth of Depository Growth of Depository Accounts of CDSAccounts of CDS
PeriodPeriod No:Of AccountsNo:Of AccountsFebruary –2004February –2004 10,89310,893March –March –20042004
12,48312,483
April –April –20042004
13,78113,781
May – May – 20042004
13,84613,846Source: CDS,PDD,Central Bank of Sri Lanka
Regulatory FrameworkRegulatory Framework Licencing of Primary DealersLicencing of Primary Dealers Primary Dealer SupervisionPrimary Dealer Supervision - On Site Examination- On Site Examination - Off Site Surveilance- Off Site Surveilance Regulations, Directions and Regulations, Directions and
GuidelinesGuidelines
The EndThe End
Thank You !Thank You !