CB couldn’t explain interest rate calculations for Bonds issue: AG

• Failed to provide all documentation due to confidentiality restrictions

• 30 year bonds were unnecessary

• Govt. Incurred an initial loss of Rs. 400 m

By Manopriya Gunesekara and Ranjan Katugampola

Giving explosive details about the alleged Treasury Bond scam Auditor General (AG) Gamini Wijesinghe yesterday giving evidence at the Presidential Commission inquiring into the bond issuance in February 2015 said that the Central Bank failed to provide all necessary documentation for the inquiry, while also falling short of filing explanations on interest rate calculations.

While the AG department was able to access majority of the documents related to the audit on the matter under inquiry, the Central Bank refused to furnish some documents requested citing confidentiality issues, Wijesinghe told the Commission.

“From the beginning Central Bank refused to give access to all the documents due to confidentiality issues. However most of the documents related the inquiry was provided by the Central Bank,” he told the Commission adding that the Department was informed that the Bank did not have certain documents related to Secondary Market.

Upon asked if he was privy to an undated letter sent by then Finance Minister Ravi Karunanayake stating that Rs. 75 billion is needed for road development, which was shown at the hearing, the Auditor General said he had not seen the document before.

Wijesinghe informed the Commission that then Central Bank Governor has given approval to issue bonds for long periods of time – up to 50 years – a practice which has never been followed before. He also said that there were short comings in the notes given by the Governor.

“The Central Bank failed to give an acceptable explanation when asked why bonds were issued for a period of 30 years. They said it was to attract foreign investors,” Wijesinghe told the Commission.

Wijesinghe said that the bonds were issued to raise money to pay interest on Loans. However there were enough funds with the Government to pay the interest. Asked as to what would have been the best option that the Central Bank could have taken to fulfill the government’s debt requirement on 27 February 2015, he said the Public Debt Department should have raised Rs. 2.6 billion in the auction and the rest via direct placement method from the captive sources such as the EPF, ETF, Insurance Cooperation and the Bank of Ceylon.

“Anyway if money was needed, what should have been done was to issue short term Treasury Bonds. It was not necessary to issue bonds for 30 years period,” he said.

“Anyway if money was needed, what should have been done was to issue short term Treasury Bonds. It was not necessary to issue bonds for 30 years period,” he said.

According to him, the coupon rate of the Bond issue 12.05 was suspect, however Central Bank’s Public Debt Management Department failed to submit an explanation despite the AG’s department demanding explanation on how the interest rate for the said bond issuance was decided.

Wijesinghe told the Commission that the Government has incurred an initial loss of Rs. 400 million due to the controversial transaction. He said that the Central Bank has issued 905 percent more bonds to the market than the initial announcement.

According to the AG, during the last six years the Government has issued bonds on 248 occasions. However, the difference between the initial announcements to actual bond issuance has varied only up to 406 percent.

The Central Bank employed the direct placement in the past to keep the interest rates low, he said, however necessary information to arrive at a concrete conclusion on the benefits of the method was not furnished by the Central Bank audit department due their confidentiality policies, he said.