Sri Lanka debt burden cause for worry: RAM Ratings

June 26, 2008 (LBO) – Sri Lanka’s debt burden is a cause for concern with resort to foreign borrowings only providing temporary relief in bridging the fiscal deficit, RAM Ratings (Lanka) said.

The rating agency said the growing loan interest payments are also of some concern for overall government finances especially at the prevailing higher international interest rates.

” . . .they can ill afford another round of open market operations which could cause inflation to spiral out of control.”

RAM Ratings said there is also a need to reduce the current account deficit to a more sustainable level and increase the competitiveness of the country’s exports, particularly the garments industry. Deteriorating economic conditions such as high inflation and interest rates is expected to slow growth this year although it will recover the next with the construction sector seen remaining resilient, it said in a report on the island’s economic outlook.

The budget and current account deficits should also be brought down to more manageable levels, the rating agency said.

The government’s first sovereign bond issue of 500 million dollars in 2007 helped it retire a big portion of domestic