Wednesday, 3 July 2013 00:01
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The main Opposition UNP yesterday issued the following statement on the Moody’s rating downgrade and the outcome of the 2013 Mid-Year Fiscal Position Report.
Ratings downgrade
It comes as no surprise that the international investor community is losing confidence in Sri Lanka. To cut the outlook from ‘positive’ to ‘stable’ is a huge indictment on the government’s current economic management and the validity of the purported development story in the coming years. The recent sell down of foreign-held Government paper seem only the beginning of an emerging crisis of confidence. Over the last couple of years we have been pointing to the fact that the economy would lose the artificial growth momentum and that the external payment position would weaken due to economic policy being dictated to be short term political objectives. We have been very critical of the unsustainable external debt levels the government was getting in to and also the danger in pushing banks and other state enterprises to get into high-cost foreign borrowing.
We have also been pointing out that the incentive to maintain a competitive exchange rate would also be hampered if the volumes of external debt held by these entities become significant. In this context the UNP have also stated our objections to any moves to shift the exchange risk of the proposed Eurobonds by the National Savings Bank, NDB Bank and DFCC Bank to the tax payers. It now seems that others are in agreement.
With this ratings cut something else that is clear is that however much the Central Bank is attempting to spin a make-believe positive story on the post war economic performance of the country, even going to the unprecedented extent of hiring public relations agencies at enormous costs, the rating agencies and the investor community has and will continue to see through the smoke and mirrors.
2013 Mid-Year Fiscal Position Report
The Government has finally succumbed after dodging our continuous questions on why the Finance Ministry was hiding estimated versus actual data on revenue and expenditure in violation of the legal requirement in the Fiscal Management (Responsibility) Act for almost three years.
Today marks the first time since assuming office in 2004 this Government has provided information to the public on how its finances are performing in relation to the estimates provided in the budget.
That there is a 20% reduction in the already low tax revenue from the estimate for the first four months of the year puts in perspective the stories floated by all and sundry in the Government that there is almost miraculous development taking place across the country.
The reduction of the thus far asymmetrical fiscal information will certainly help the public make better informed decisions. After all, increasing public awareness of the Government’s fiscal policy was a key objective of the FMRA when it was introduced by the then UNP government.
