Lanka among highest-risk financial systems, says ratings agency
Central Bank Governor Ajith Nivard Cabraal said the latest report released by Fitch which placed Sri Lanka among the highest-risk financial systems, was puzzling because it failed to acknowledge the good economic gains made by these countries in a world of uncertainty.
"While many advanced economies ‘de-lever’, the speed of credit growth and rising asset prices has led to Asia-Pacific harbouring four of the world’s nine highest-risk financial systems according to Fitch’s macro-prudential risk framework. Hong Kong and China were joined by Indonesia and Sri Lanka in the December 2011 assessment, although Vietnam dropped out as credit growth eased," Fitch said as reported in these pages last Saturday (24).
Cabraal said the countries in this list had recorded vibrant economic growth during the year which saw major Western economies slump.
"All these countries had good economic growth. Sri Lanka’s economy would grow by 8 percent this year and our macroeconomic fundamentals are sound. We are surprised that some of the economies that should have been highlighted with high-risk financial systems have not been mentioned. We find the Fitch report a bit puzzling because of this," Cabraal said.
Fitch upgraded Sri Lanka’s Long-Term Foreign-Currency IDR to ‘BB?’ with a Stable Outlook from ‘B+’/Positive in July 2011, reflecting the stabilisation and recovery of the economy under the authorities’ IMF programme and efforts to consolidate the chronic budget deficit, the ratings agency said.
"However, foreign direct investment has been surprisingly slow to recover after the end of the country’s long civil war in 2009, and the authorities devalued the Sri Lankan rupee by 3% in November 2011. Structural reforms to support longer-term growth prospects combined with further fiscal consolidation efforts would increase Sri Lanka’s chances of moving further up the ratings scale," Fitch said.
"Strong and/or improving external balance sheets buffer most of emerging Asia from ongoing volatility in global investor risk appetite. India and Sri Lanka are the only Fitch-rated emerging Asian countries to run deficits on basic balance (the current account plus net foreign direct investment). This structural weakness may help explain why the Indian rupee fell to a record low against the US dollar in December 2011, while Sri Lanka devalued its currency in November," it said.
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