Downgrading of SL’s credit rating by Fitch

Thursday, 23 December 2021 00:00 - - {{hitsCtrl.values.hits}}

The Central Bank is harking back on the Road Map presented by the Governor of Central Bank five months ago, with a rosy picture painted on the performance of the economy, domestic industrial output, projected revenue from tax reforms, possible Foreign Direct Investments, income from tourism and emphasis on foreign employment income. All these predictions or goals seem to be hypothetical ‘imaginations’.

Certain statistics show industrial output improving and trade deficit declining to some extent, when one considers the number of business establishments that are being forced to shut down, building construction projects that have come to a standstill with shortage of building materials and exorbitant prices with adverse foreign exchange rates, lack of spares for machinery and declining cash flows, the reported economic recovery in November is like a mirage.

With the recent foreign exchange restrictions and loss of employment opportunities for Sri Lankans in the Middle East and other countries, the anticipated inflows of worker remittances will see a sharp decline. For tax revenues to keep up to the projected levels, the earnings by taxpayers have to increase, which unfortunately is not reality.

Fitch is an internationally-reputed credit rating institution. They go by exacting standards and research for facts that are published and available in various public domains.

As bankers, when we are presented with a credit proposal, we do a comprehensive study on the facts presented, applying the infallible SIX Cs principles of credit analysis. Even when evaluating a new investment project, we check on the capacity, recent performance records, borrowings and obligations and the probability of realising projected incomes. In somewhat similar manner, the ratings agencies too have their own criteria to evaluate the projected inflows and ability of a country to achieve near term inflows and economic output with a longer-term outlook.

The projected goals and aspirations formulated in the Road Map presented by the Governor do not convince many Sri Lankans and obviously the rating agencies as well. So instead of ‘berating’ the rating agencies like Fitch, it would do well for the Government to get its act together and forget petty politics.

Some ministers and many MPs in the Government appear not to comprehend the serious economic situation in the country and they too shout from their rooftops against the rating agency, Fitch.

– A former banker