Thursday, 17 October 2013 00:00
Rating agency says external finances a concern though reserves remain adequate
Sri Lanka’s economy is now growing at a sustainable pace according to Fitch Ratings, which however flagged off concerns over the country’s external finances owing to the rise in foreign debt profile.
“The economy is growing at a more sustainable pace as real GDP grew 6.3% yoy in H113 and CPI inflation has moderated, rising 6.2% yoy in Q313 (vs 6.8% in Q213),” Fitch said with regard to Sri Lanka in its 2013 third quarter Asia Pacific Sovereign Credit Overview released yesterday.
However, Fitch said: “Sri Lanka’s external finances remain a source of concern due to a heavy external debt refinancing schedule, where an average of US$ 1.9 b per annum in sovereign debt is projected to mature during 2013-15.”
“Foreign reserves, however, remain at an adequate level, standing at US$ 6.3 b (or 3.2 months of current external payments) at end-July 2013,” Fitch added.
It also noted progress on fiscal consolidation has been slow as the budget deficit fell to only 6.4% of GDP in 2012.
Fitch has affirmed Sri Lanka’s Foreign Currency (FC) and Local Currency (LC) ratings at “BB-“ with a stable outlook in April, 2013, which balances the strength of the country’s resilient growth performance and strong payment record against the weakness of fiscal and external balance sheets.
The rating agency said upsides for Sri Lanka include sustained improvements in both the public and external finances whilst on the downsides were the intensification in external financing risks, an extended period of overheating or a significant deterioration in the public finances.
Fitch has flagged off public finances and external finances as weaknesses though it sees trend to be stable. It remains neutral with regard to macroeconomics and structural issues with forecast of stable trend for both in relative to BB rating category.
The need for Sri Lanka to fund high investment rate via foreign investment was also emphasized by Fitch.