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Sri Lanka's deterioration in policy consistency and credibility leading to a widening of macroeconomic imbalances and a loss of investor confidence were major negative sensitivities, said Fitch, the global rating agency.
"Sri Lanka's foreign-reserve coverage of its current external payments remains narrow, and is vulnerable to shifts in investor sentiment. That is especially true because foreign holdings of Sri Lankan government securities are high and as domestic political uncertainty currently prevails", Fitch Ratings said in a review of Asia Pacific countries, in the latest report released late Monday.
Fitch report also highlighted that the weakness of countries public finances and it said that general government revenues continue to decline, and in Fitch's view, this trend is likely to continue. The interim budget announced in January 2015 did little to address the underlying weaknesses in the fiscal profile as most of the revenue measures announced was one-off in nature.
Growth Offsets Political Debility: Sri Lanka's 'BB -'/Stable rating reflects high and less volatile real GDP growth compared with peers, and a favourable level of basic human development against persistent political uncertainty, weak public finances and a frail external liquidity position.
Key Developments Persistent Political Uncertainty: Sri Lanka witnessed a smooth transition of power during the January 2015 Presidential elections. However, parliamentary elections are due next, the timing of which still remains uncertain. Parliamentary elections have been postponed further despite being initially planned for June 2015. Public finances remain weak: general government revenues continue to decline, and in Fitch's view, this trend is likely to continue. The interim budget announced in January 2015 did little to address the underlying weaknesses in the fiscal profile as most of the revenue measures announced was one-off in nature.
External liquidity position weak: Sri Lanka's foreign-reserve coverage of its current external payments remains narrow, and is vulnerable to shifts in investor sentiment.
That is especially true because foreign holdings of Sri Lankan government securities are high and as domestic political uncertainty currently prevails. Lower oil prices, a steady inflow of remittances and tourism receipts are expected to support the current account. But wage increases announced in the interim budget and the policy rate cut in April could translate into higher imports and is a risk to the current account that bears monitoring.
Positive Sensitivities
A significant improvement in external finances underpinned by a sustained cut in the current
• Account balance and higher foreign direct investment, and improvement in foreign reserves credible medium-term fiscal consolidation strategy that leads to a reversal of the negative.
• Trend in government revenue and GDP
negative sensitivities a further increase in external vulnerability because of sharp decline in foreign reserves.
• Deterioration in policy coherence and credibility leading to a widening of macroeconomic imbalances and a loss of investor confidence.
Courtesy: Ceylon financial Today 24 June 2015
"Sri Lanka's foreign-reserve coverage of its current external payments remains narrow, and is vulnerable to shifts in investor sentiment. That is especially true because foreign holdings of Sri Lankan government securities are high and as domestic political uncertainty currently prevails", Fitch Ratings said in a review of Asia Pacific countries, in the latest report released late Monday.
Fitch report also highlighted that the weakness of countries public finances and it said that general government revenues continue to decline, and in Fitch's view, this trend is likely to continue. The interim budget announced in January 2015 did little to address the underlying weaknesses in the fiscal profile as most of the revenue measures announced was one-off in nature.
Growth Offsets Political Debility: Sri Lanka's 'BB -'/Stable rating reflects high and less volatile real GDP growth compared with peers, and a favourable level of basic human development against persistent political uncertainty, weak public finances and a frail external liquidity position.
Key Developments Persistent Political Uncertainty: Sri Lanka witnessed a smooth transition of power during the January 2015 Presidential elections. However, parliamentary elections are due next, the timing of which still remains uncertain. Parliamentary elections have been postponed further despite being initially planned for June 2015. Public finances remain weak: general government revenues continue to decline, and in Fitch's view, this trend is likely to continue. The interim budget announced in January 2015 did little to address the underlying weaknesses in the fiscal profile as most of the revenue measures announced was one-off in nature.
External liquidity position weak: Sri Lanka's foreign-reserve coverage of its current external payments remains narrow, and is vulnerable to shifts in investor sentiment.
That is especially true because foreign holdings of Sri Lankan government securities are high and as domestic political uncertainty currently prevails. Lower oil prices, a steady inflow of remittances and tourism receipts are expected to support the current account. But wage increases announced in the interim budget and the policy rate cut in April could translate into higher imports and is a risk to the current account that bears monitoring.
Positive Sensitivities
A significant improvement in external finances underpinned by a sustained cut in the current
• Account balance and higher foreign direct investment, and improvement in foreign reserves credible medium-term fiscal consolidation strategy that leads to a reversal of the negative.
• Trend in government revenue and GDP
negative sensitivities a further increase in external vulnerability because of sharp decline in foreign reserves.
• Deterioration in policy coherence and credibility leading to a widening of macroeconomic imbalances and a loss of investor confidence.
Courtesy: Ceylon financial Today 24 June 2015
