SL current account deficit funded by high govt. debt, low FDI: Fitch
View(s):Sri Lanka’s current account deficit is funded by the country’s high government debt and low foreign direct investment, according to ratings agency Fitch.
In its recent “Asia Pacific Sovereign Credit Overview”, issued internationally by Fitch, Sri Lanka’s long-term Foreign Currency and Local Currency Issuer Default Ratings (IDR) were both maintained at “BB-” with a “Stable” outlook, supported by “relatively strong growth, a comparatively high level of human development, and a solid payment record”.
However, Fitch also commented that the “fiscal deficit (Fitch estimates 5.8 per cent of GDP in 2013) and government debt burden (77.2 per cent of GDP in 2013) remain relatively high, although the 2014 budget signals commitment to medium-term debt reduction and an ability to maintain a gradual fiscal consolidation trend”.
Further, it was also opined that the “external finances form a weakness, with a persistent but narrowing current account deficit and higher net external debt (36.6 per cent of GDP) compared with peers also rated in the ‘BB’ category (on average, 22.8 per cent of GDP)”.
At the same time, Fitch also signalled that the following could drive ratings; “Upsides: sustained improvement in both the public and external finances” and “Downsides: An intensification in external financing risks, an extended period of overheating, or a significant deterioration in the public finances”.
Meanwhile, Fitch also signalled that, while the external finances and public finances were weak, with this trend continuing to be stable, the status of Sri Lanka’s macroeconomics and structural issues were neutral, with this trend expected to be stable. It also added that its findings were based on the ‘key assumption’ that the “political landscape remains broadly stable [with] no renewal of the civil conflict that lasted 26 years and ended in 2009″.
(JH)