Sri Lanka war, BOP crisis no longer hurt rating; budgets a problem: Fitch official
Aug 27, 2009 (LBO) – Sri Lanka’s internal conflict and a balance of payments crisis that led to a rating downgrade and a negative outlook have
now been wiped off the slate, but weak state revenues and high national debt are hurting Sri Lanka’s rating, a senior Fitch official said.
In April 2008, Fitch downgraded Sri Lanka’s sovereign rating by one notch to ‘B+’ on an intensifying conflict, and in February 2009, the outlook
was lowered to ‘negative’ when amid a balance of payments crisis, as authorities defended a dollar peg.
“We saw uncertainty with the direction of the war and in the external payments position at the time,” James McCormack, Fitch’s head of Asia
sovereign ratings said.
“Both factors are no longer there.”
A 30-year war with Tamil Tiger separatists ended in May.
“The end of the war is a clear positive,” McCormack said.
“But one of the big issues for us is fiscal policy.
“There has been a pretty steady fiscal deterioration. There is a real revenue problem. That is what is contributing to the deficit.”
Reducing the deficit will allow the private sector to grow, he said.
McCormack says some countries in the region, including higher rated ones, had seen larger fiscal reversals during the crisis, including Singapore.
But benefiting from better fiscal policy in the past, such countries had lower national debt levels.
This year Sri Lanka saw a nominal fall in revenues as the economy slowed, amid dollar peg defence and an external slowdown which reduced
demand for the country’s exports.
Sri Lanka’s high spending governments, that spend most its revenues on current expenses and runs a deficit on the current account of the budget
has caused high interest rates and also triggered high inflation by borrowing from the central bank for decades.
Standard and Poor’s raised the outlook on its Sri Lanka rating to ‘stable’ from ‘negative’ but held the underlying ‘B’ speculative rating in place.
Fitch has rated the country a notch higher at ”B’ and there are strong expectations of an outlook upgrade.
Foreign investments had flooded in to the country’s Treasuries markets and gross foreign reserves are now 3.2 billion US dollars, Central Bank
Governor Nivard Cabraal said.
Sri Lanka draws Japanese investor interest
Aug 26, 2009 (LBO) – A 40-member Japanese trade and investment mission is due to visit Sri Lanka in November 2009 following the end of
the island’s 30-year ethnic war, the Ceylon Chamber of Commerce said.
Members of the mission during their visit will take part in the Japan – Sri Lanka Business Co-operation Committee meeting scheduled to be
held during November 18-20, 2009.
Part of the joint meeting would also be devoted to one-to-one business meetings between the Japanese and Sri Lankan business community, the
Ceylon Chamber of Commerce said in a statement.
“The objectives of the joint meetings are to promote trade, investment, tourism and services between the two countries.”
The chamber represents the Business Co-operation Committee in Sri Lanka.
It said Japan has been a key aid donor and investor in Sri Lanka, helping to fund infrastructure modernisation like Colombo port container
terminals, power stations and roads, as well as health care and education.
Japanese private sector investments have also been important for the island
There are about 60 big enterprises with Japanese investment operating in Sri Lanka employing about 12,000 people as well as several smallscale
Investor interest in Sri Lanka has improved markedly in recent months after government forces defeated Tamil Tiger rebels in May.
Foreign investors are looking to invest in property, tourism, manufacturing and agriculture.
Foreign funds have also invested in government securities.
Sri Lanka rating outlook lifted to ‘stable’ by S&P
Aug 25, 2009 (LBO) – Standard & Poor’s has lifted the outlook on Sri Lanka’s speculative ‘B’ sovereign rating to ‘stable’ from ‘negative’ on
expectations of better policy under an International Monetary Fund program and capital inflows.
A sovereign rating measures the creditworthiness of the government. Sri Lanka’s high spending governments, that frequently borrows from the
central bank (prints money), has a history of de-railing monetary policy and pushing inflation up and the exchange rate down.
S&P said the foreign inflows have improved the external payment ability but the improved outlook was balanced “against prevailing large fiscal
deficits and the associated debt and interest burdens.”
“The ratings could be raised if government policies lead to a sustainable boost in tax revenues and reduced fiscal imbalances, such that debt
ratios become more aligned with the median for this rating category,” S&P said.
“Conversely, the ratings would come under downward pressure if the public debt trajectory tilts upward.” “The ratings would also come under
downward pressure if external liquidity pressures are renewed.”