Sri Lanka central bank withdraws some printed money

July 18, 2008 (LBO) – Sri Lanka’s central bank has Friday withdrawn seven billion rupees, a part of the money printed to finance a government cash deficit earlier in the week, reducing the risk of triggering another balance of payments crisis.

“So long as open market purchases of Government securities are allowed (as, of course, they must be) it is very difficult to prevent these becoming an indirect means of making central bank credit available to finance Government deficits,” the magazine warned.

Sri Lanka’s revenue deficit (the gap in the current account of the budget) rocketed to 118.2 billion in the four months to April from just 18.8 billion rupees in the year earlier, in an unprecedented reversal of fiscal fortunes the country has not experienced earlier.

Overdrafts with the state banks rose to 77.0 billion rupees at the end of May 2009, from 44.1 billion a year earlier.

Revenue for the first five months was down 8.7 percent to 239.6 billion rupees.

Updated The monetary authority sold down 4.0 billion of bills 14 days ahead of maturity and 3.0 billion rupees of bills 21 days ahead of maturity, through ‘open market operations’.

The move reduced excess liquidity in the banking system to 12.9 billion