The Auditor General believes a loss was caused to the government as a result of the Central Bank accepting Rs. 10 billion in bids as opposed to what was offered and recommended at the bond auction on the 27th of February 2015.
Auditor General Gamini Wijesinghe testified that the Central Bank of Sri Lanka had gone for a 30 year bond to raise funds at a time when there were other least cost methods available.
He said the Treasury Operations Department had wanted money to pay interests for bonds and however, added that at the time there were sufficient funds available to make the payments.
When the Auditor General raised questions on the Monetary Board’s so-called decision to issue 30 year bonds, the Central Bank of Sri Lanka had failed to provide justifiable reasons.
The Central Bank had reasoned that it was to attract foreign investors. However, according to the annual report for the respective year, interests from foreign investors on Treasury Bills had declined.
He had paid more focus in his investigations on the auctions held on the 27th of February 2015 and 29th of March 2016 because the amounts obtained through bids were greater than the amount offered.
He said the Central Bank had failed to submit material to indicate the criteria that was used to fix the coupon rate for the controversial auction at 12.5%.
A total of Rs. 20.708 billion had been received at the auction on the 27th of February 2015.
According to the Auditor General’s report, during the 146 minutes of the auction Rs. 7.108 billion were received of which Rs. 2 billion was from Perpetual Treasuries Limited and Rs. 5.108 billion from the other primary dealers.
During the last eight minutes, Rs. 13.6 billion had been received in bids of which Rs. 13 billion was from Bank of Ceylon through Perpetual Treasuries Limited, while only Rs. 0.6 billion were from other Primary Dealers.
According to the Auditor General’s calculations, the estimated loss by accepting bids amounting to Rs. 10.058 billion as oppose to accepting Rs. 1.308 billion of the face value was Rs. 889.358 million.
The estimated loss by accepting bids amounting to Rs. 10.058 billion as opposed to accepting Rs. 2.608 billion of the face value initially recommended by the Public Debt Department was Rs. 688.538 million.
He said if the one billion rupees was accepted, the remainder could have been raised through Direct Placements at a rate of 10+%.
Though Direct Placements are considered a least cost method, CBSL has not given complete details on the method citing a principle of secrecy which led to the Auditor General to believe there was an issue in transparency in the method.
Despite the method being used to control interest rates, the Auditor General believes that was a possibility for impropriety to take place.