1. 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

2. Development of the Bond Market Events of Significance b 1923 - Issue of loans commenced under the Colonial Treasury Bill Ordinance by Crown Agents in U.K. b 1937 - Issue of Rupee Loans commenced under RSSO No.7 of 1937 b 1941 - Issue of Treasury Bills commenced under LTBO (Chapter 287) b 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. b 1986 - Weekly Treasury Bill auctions commenced b 1992 - Primary Dealers were appointed.

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

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

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

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

7. Implementation of the Government Securities Programme è Preparation of the borrowing calendar è Release of information to the market è Regular meeting of the Debt Management Committee ( weekly) è Regular meeting with Primary Dealers (weekly)  Issuance of domestic debt: e.g. Auction, Tap, Placements

8. Organization of Public Debt Department ä Front Office - market/public relations, primary issuance, market information, investor awareness market information, investor awareness ä Middle Office - research inputs, risk analysis, issuance techniques, product development, techniques, product development, database database ä Back Office - payment and settlement, servicing of concessional foreign debt, CS-DRMS concessional foreign debt, CS-DRMS ä Support Services- human resources, training, IT support, maintenance. maintenance.

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

16. Secondary Market - - Participants - Participants - Ownership Structure - Ownership Structure - Taxation Policy - Taxation Policy - Yield Curve - Yield Curve

18. Bond Market Infrastructure b Online Electronic Bidding System b Real Time Gross Settlement System b Scripless Securities Settlement System b Bloomberg Bond Trading System b Colombo Stock Exchange - DEX System

19. Transaction Numbers and Volumes of the SSS System Period Number of Transactions Volume (Rs. Mil) February –2004 5,696 5,696 481,719.01 481,719.01 March –2004 14,037 503,271.56 503,271.56 April – 2004 11,500 523,349.47 523,349.47 May – 2004 11,833 598,636.56 598,636.56 Total43,0662,106,976.60 Source:CDS,PDD, Central Bank of Sri Lanka

20. Growth of Depository Accounts of CDS Period No:Of Accounts February –2004 10,893 March –2004 12,483 April –2004 13,781 May – 2004 13,846 Source: CDS,PDD,Central Bank of Sri Lanka

21. Regulatory Framework b Licencing of Primary Dealers b Primary Dealer Supervision - On Site Examination - On Site Examination - Off Site Surveilance - Off Site Surveilance b Regulations, Directions and Guidelines

22. The End The End Thank You !