Clarifying the provisions of the proposed Liability Management Act, Central Bank Governor Dr.Indrajit Coomaraswamy said that the Act provides for borrowing over and above the ceiling prescribed in the Appropriations Act and was to be used specially for debt servicing. The Governor said at present, the Appropriation Act sets a ceiling on borrowing – limited to budget deficit as reflected in this Act.
In effect, this meant the Central Bank could not borrow for liability management.
Dr.Coomaraswamy said the Liability Management Act would enable the Central Bank to raise money to address the bunching of external debt that will soon ensue. The Act also makes provision for borrowing to repay domestic debt.
“The new Act will create space specifically to raise money for liability management,” the Governor said.
“Given public debt dynamics, we need to create space over and above borrowing requirement specifically for debt servicing.”
In answer to a question from the media as to whether the new Act would further burden Sri Lanka with more borrowing, the Governor said that the Act specifies the reasons which would allow borrowing and set limits as well.
“The Liability Management Act would institionalize fiscal policy and give it more teeth, just as monetary monetary policy has been institutionalized,” Dr.Coomaraswamy said.