May 04, 2012 (LBO) – Sri Lanka has to persist with reducing its budget gap and tighten monetary policy further if needed to ward off balance payments pressure, Fitch Ratings which confirmed a sovereign rating at ‘BB-‘ said. The outlook on the rating was ‘stable’.
“The ratings reflect Fitch’s view that the authorities have taken the appropriate action to
correct recent pressure on the balance of payments and place it on a more sustainable
trajectory,” Philip McNicholas, a director of Fitch’s Asia-Pacific sovereign ratings group said.
“Given the weakened state of Sri Lanka’s external finances and a heavy external debt
refinancing schedule through to 2013, the authorities’ ability to persist with policies that
address existing macroeconomic imbalances and improving external liquidity is crucial.”
Sri Lanka’s rupee peg came under pressure from credit taken by state enterprises to manipulate energy prices and a failure to raise interest rates to reign in a credit bubble and keep the economy stable.
“In the near-term, certain policy measures have resulted in adverse risks to both growth and
inflation that have the potential to impact policy consistency,” Fitch said.
“Due to the authorities’ pro grow