Sri Lanka ‘BB-‘ rating confirmed, foreign debt, deficits high: Fitch

Apr 28, 2014 (LBO) – Fitch Ratings has confirmed a ‘BB-‘ rating on Sri Lanka with a stable outlook on strong economic growth but said state debt was over twice that of similar rated countries and foreign debt three times as much. “The 2014 budget signals commitment to medium-term debt reduction to maintain a gradual fiscal consolidation path, although the process is slow and to a large extent built on revenue projections that may turn out too optimistic,” Fitch said.

The current account deficit has fallen from 6.7 percent of GDP in 2012 to 3.9 percent in 2013.

A current account deficit is generally caused when inflows that generate a surplus in the capital accounts is spent by domestic players. In Sri Lanka the government is a net borrower abroad. Private foreign borrowings are also picking up.

Foreign investments when spent, also expands the current account through capital imports.

But the current account deficit can also surge beyond the capital account surplus when money is printed by a central bank to sterilize foreign exchange sales during a so-called a balance of payments crisis and forex reserves are run down as happened in 2011 and 2012.

Fitch said in 2014 the external current account deficit is e