Sri Lanka faces a major hurdle in doing business with European businessmen and attracting investments or to borrow money at reasonable rates from international money markets.
This is because of a decision taken by the Organization for Economic Co-operation and Development (OECD) not to change its current lower political risk rating for Sri Lanka, despite heavy lobbying by the Central Bank.
European businesses will have to pay higher risk premiums in obtaining credit insurance if they are to trade with Sri Lanka, a senior official of the Finance Ministry said.
The OECD decision, not to change its rating of 6 (from 1-7) given to Sri Lanka and ranking it alongside countries like Angola, Kenya, Uganda, Zambia, Iran, Senegal, etc at its experts panel meeting in Paris at the end of March shows that some European countries have not accepted the political stability in the country after the ending of conflict, he added.
“We have failed to convince the OECD, a body set up to promote policies that will improve the economic and social well-being of people around the world, that Sri Lanka’s economic fundamentals are on a correct path as the country has achieved an economic growth of 8% of GDP,” he added.
Central Bank Governor Ajith Nivard Cabraal was unavailable for comment as he is abroad.
Mr. Cabraal, in a speech at the European Institute for Asian Studies (EIAS) in Brussels in mid-March on the theme “Sri Lanka’s Economic Resurgence and Future Prospects” had made a passionate appeal to OECD nations to upgrade Sri Lanka’s credit rating so that the island would be able to borrow cheap from international money markets.
He noted that “Belgium has availed of the new economic opportunities that had opened up in Sri Lanka since the end of the conflict and its revision of the short-term political risk rating on Sri Lanka substantially, and relaxation of the travel advisory had shown tangible results in boosting Belgian trade, investment and tourism with Sri Lanka.”
He hoped other OECD countries would emulate this and mutually benefit from Sri Lanka’s economic resurgence”. But the appeal went unheeded by the 34-member group.
Central Bank sources said that while Sri Lanka was not dependent on OECD funding, the low rating would have an impact on investors and businessmen of its member countries as they would have to pay a higher risk premium for credit insurance to do business with Sri Lanka.