Sri Lanka ratings can improve on public sector reforms, lower debt: S&P

Oct 01, 2010 (LBO) – Sri Lanka’s ratings can improve if the government uses its political strength to reform the public and economic policy which would allow public debt to come down, Standard & Poor’s, a rating agency has said. Following recent electoral victories the government no longer depended on the support of “minority extremist parties, as had been the case in the past,” the agency said in a report on the Asia – Pacific region.

“The much improved political stability would allow for broad-ranging fiscal, microeconomic, and public-sector reforms,” the report said.

“[H]owever, the administration’s appetite for reform is limited, and will aim mostly at expanding fiscal revenues.”

Sri Lanka’s central bank has been relaxing exchange controls, while the finance ministry has cut import duties.

Sri Lanka has a bloated public sector and the government is planning to extract more taxes from the people to reduce its deficit, which is expected to be at least 8.0 percent of gross domestic product in 2010.

An IMF report said the government is expected to increase revenues to at least 15.5 percent of GDP in 2011 from a planned 14.9 percent in 2010.

S&P also said deficit cuts were planned by extracting