Sri Lanka expropriations will hurt investment: Fitch

Nov 16, 2011 (LBO) – Sri Lanka’s new law to expropriate 37 businesses would discourage investment and hurt growth, despite the state promising that it would be a one-off measure, Fitch Ratings has said. “While the Sri Lankan government has said that this is a one-off measure, and the list implies that the Act is limited in scope, there is a risk that it will set a precedent for further expropriation and will be applied to a broader range of businesses and assets,” Fitch Ratings said.

“This would be a disincentive for both local and foreign investors.”

Fitch said a barrier to investment would be negative for growth which has been strong around 8 percent in 2010.

Attracting higher levels of non-debt capital like foreign direct investment would help Sri Lanka rely sell on debt and also improve overall competitiveness. Last year Sri Lanka had received 478 million US dollars in FDI Fitch said.

Fitch had rated Sri Lanka ‘BB-‘, three levels below investment grade.

Strong growth with an improvement in the investment climate and private sector capital spending and increasing state revenues and better used of money would help the rating, Fitch said.

Fitch said the expropriation law,