Fitch’s rating affirmation will boost confidence: Harsha

Published : 10:42 am  April 24, 2015 | No comments so far |  | 

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By Lahiru Pothmulla
 
Fitch’s affirmation of ‘BB-‘ rating on Sri Lanka will result in more foreign investments, and will allow the country to raise funds externally at reasonable rates, according to Economic Affairs and Policy Planning Deputy Minister Dr. Harsha de Silva.
 
However, Sri Lanka will have to abort plans to borrow from international capital markets in 1Q15, largely due to domestic political uncertainty and an adverse shift in investor sentiment.
 
Fitch Rating on Wednesday rated Sri Lanka’s economy at ‘BB-’, same rating maintained by the previous government.
The deputy minister went on to note that the rating would increase the confidence on the country’s economy and said the government would be able to achieve US $ 10 billion worth  foreign reserves end of this year.
 
“The smooth transition of powers at the end of the January’s presidential election, new government’s policies on economy, increased GDP and lower rates on loans had been commended by Fitch as positive features to uphold economic growth,” Dr. de Silva said addressing a news briefing at his ministry.
 
However Fitch cautioned that despite the country continued to post strong economic growth far exceeding the ‘BB’ median of 3.9 percent, the growth was heavily dependent on external borrowings.
 
Though falling oil prices, remittances and tourism earnings will help the current account deficit, Fitch noted that heavy external debt repayments are raising concerns over the country’s external liquidity, particularly in the face of expected monetary tightening by the US Fed. Sri Lanka’s international reserves have been falling from US $ 10 billion at end-April 2014 to less than US $ 7 billion at end-March 2015.
 
Fitch expects Sri Lanka to succeed in rebuilding the reserves to US $ 10 billion by end-2015 through a combination of renewed borrowing from international capital markets, the exercise of foreign currency swaps with Indian and Chinese central banks and onshore borrowing through Sri Lanka Development Bonds. Dr. de Silva commenting on their future policy plans said they were holding discussions on how to boost the economy once the general elections were concluded.
 

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