Fitch forecasts 7% growth; insists challenges remain

Wednesday, 7 August 2013 00:18 -     - {{hitsCtrl.values.hits}}

Fitch Rating officials yesterday remained cautiously optimistic on Sri Lanka, noting that recent success is overshadowed by growing challenges and risks. Fitch said it forecasts Sri Lanka’s economy to grow 7% in 2013. The country’s economic growth slowed to 6.4% in 2012, after two years of consistent growth at 8% in 2010 and 2011, following the end of the ethnic conflict in 2009. “To fuel their growth, larger export-driven corporates are likely to seek external funding, along with commercial banks, as they cater to credit demand from exporters that generally lack the scale to tap global bond markets,” Fitch said. Head of Asia Pacific Sovereigns Andrew Colquhoun noted that Sri Lanka remains a high growth and high investment economy but funding growth needs higher flows of foreign capital. However, foreign direct investments inflows have been fairly weak. This he pinned to weaknesses in governance indicators despite the business environment remaining relatively strong. Colquhoun also warned that external debt has been on the rise strongly. This, he argued makes, Sri Lanka vulnerable in the tight global liquidity situation. In that context, the Fitch official emphasised on fiscal consolidation – lower inflation could help raise domestic savings in addition to cutting down foreign borrowing. The roundtable held by Fitch yesterday also saw senior analysts discussing the latest developments affecting bank and sovereign credits in Sri Lanka, the Asia Pacific region and globally. Head of South and Southeast Asia Financial Institutions Ambreesh Srivastava focused on whether operating environment related risks negative for bank ratings in South Asia whilst Vice President Financial Institutions Rushana Thalgodapitiya covered the Sri Lankan banking sector. The event also featured panel discussions on banks and sovereigns as well as on prospects for development of capital markets in a ‘Fed-exit’ world, with Fitch’s analysts and leading representatives from the Government, finance and corporate sectors in Sri Lanka.