Fitch Ratings referred to the current fiscal targets of the government as ‘ambitious’ with regard to the International Monetary Fund (IMF) programme which calls for the fiscal deficit to fall to 7% of GDP in 2009 from 7.7% of GDP in 2008.
A further decline by 1% of GDP is expected in both 2010 and 2011.
In a press release this week, Fitch stated that based on historical fiscal performance and the clear need to increase government spending as part of reconstruction efforts, Fitch considers the current fiscal targets to be ambitious, even after taking into account the anticipated increase in donor funding.
Fitch also revised the Outlook on Sri Lanka's Long-term foreign and local currency Issuer Default Ratings (IDRs) to Stable from Negative this week. At the same time, the agency affirmed the Long-term foreign and local currency IDRs and the Country Ceiling at 'B+', and the Short-term IDR at 'B'.
From a ratings perspective however, the agreed targets with the IMF are less important than the emergence of a sustainable medium-term fiscal framework with a credible strategy for raising government revenue, the press release stated. Once interest payments on debt are accounted for, Sri Lankan government revenue is forecast by Fitch to be only 10% of GDP in 2009, among the lowest of all rated sovereigns.