Sri Lanka central bank slams Moody’s outlook downgrade

July 03, 2013 (LBO) – Sri Lanka’s central bank has disputed a cut in the outlook to stable from positive on the island’s ‘B1’ sovereign rating saying it is “backward looking” and not a proper reflection of the external position and recent improvements in the economy. Moody’s cut the outlook saying external bank borrowings had risen sharply, but reserves were not growing fast enough and budget deficits and national debt were continuing to be high amid slower economic growth.

The full statement by the Central Bank is reproduced below:-

Moody’s change of Sri Lanka’s Sovereign Rating Outlook from ‘Positive’ to ‘Stable’ is a contradiction of its own Assessment

Central Bank of Sri Lanka (CBSL) is of the view that the latest move by Moody’s of changing the outlook on Sri Lanka’s B1 foreign currency sovereign rating from ‘Positive’ to ‘Stable’, is ill-advised and backward looking, and is not a proper reflection of the external position and the recent improvements in the Sri Lanka economy.

The underlying rationale for the latest rating stance is described by Moody’s as (a) inadequate improvement in the external payment position in the past two years, and (b) slowdown in the pace of fiscal consolidation proces