Harsha says “bleeding” analysis of Treasury Bond fiasco is “bunkum”

Policy Planning and Economic Affairs Deputy Minister Dr. Harsha de Silva

The Government yesterday rebuffed the Rs. 42.5 billion bleeding analysis arising from the Treasury Bond fiasco as “bunkum” and claimed the expert computation was “highly hypothetical.”
The response came from Policy Planning and Economic Affairs Deputy Minister Dr. Harsha de Silva following the Daily FT article yesterday that the 30-year T-Bond fiasco had created an additional cost to Government borrowing. The FT article was based on an expert computation along with tabulated data.
“I can categorically say that the analysis is highly hypothetical because interest rates and yield curves are not static but dynamic. Therefore the argument put forward by the expert computation is nonsensical and is bunkum,” Dr. de Silva countered.
He also said the analysis was politically coloured and aimed at discrediting the transparent efforts of the Government.
He stated that the tabulation starts off with the 30-year T-Bond interest rate (prior to 27 February 2015) indicated at 8.85%. “This is not true and far above and the overall analysis is flawed,” the Deputy Minister said, adding that there were several other ambiguities and inaccuracies in the tabulation and computation which he described as “mala fide.”
He said that the previous regime didn’t adopt a transparent public auction system but fixed rates administratively. In that context the true rates were not captured or reflected. It was noted that privately-placed bonds had no secondary market either.
Dr. de Silva recalled that historically the first quarter and early part of April reflected a rise in interest rates due to liquidity issues leading up to the festive season, etc.
The Deputy Minister also backed the Central Bank/Monetary Board view following the 11 April monetary policy review that given the low inflation expectations and other factors, recent market rates had behaved irrationally and inconsistently.
He added that through its decision to reduce policy rates by 50 basis points the monetary authority had sent a signal to the market that real/nominal interest rates should be lower.
He also denied the claim by analysts in the article that the additional cost incurred (Rs. 42.5 billion) was easily the single largest loss that the Sri Lankan Government had ever suffered in its history as well as other insinuations the article presented.
Yesterday’s Daily FT article stated that just five weeks after the controversial 30-year Treasury Bond issue, the country had incurred an additional Rs. 5.3 billion as higher interest costs for this year alone and the incremental borrowing cost during the tenure of the different T-Bills and T-Bonds issued within the last five weeks would now cost the country a staggering Rs. 42.5 billion.
This analysis was made on the basis that there was an increase in interest costs suffered as a result of the 30-year bond interest rate being artificially increased on 27 February 2015. This massive loss is increasing every time Treasury Bills and Bonds are issued from 27 February 2015 onwards, the analysts claimed.