Sri Lanka should address fiscal excesses, inflation: S&P

Feb 05, 2010 (LBO) – Sri Lanka’s ‘apparent lack of urgency’ to stop rising inflation and post election spending may put pressure on a deal agreed with the International Monetary Fund, Standard & Poor’s, a rating agency has said. President Mahinda Rajapaksa, re-elected with a stronger mandate, had a “unique opportunity” to “implement comprehensive fiscal and public sector reforms,” which is the key to cutting public sector deficits and debt ratios, S & P said.

But the reform agenda was “likely to concentrate mainly on addressing fiscal revenues,” while there may be new spending.

“[P]re-election promises of public sector wage increases and large infrastructure spending programs are likely to strain government coffers further, potentially endangering program targets under the IMF-sanctioned fiscal adjustment program,” S & P said in a comment on Asian sovereigns it rates.

“The final recommendations of a Tax Commission expected toward mid-year will be key, as they will serve as the basis for increasing the country’s low revenue ratios.”

S & P has given Sri Lanka a speculative ‘B’ rating. The outlook on the rating was raised to ‘positive’ from ‘stable’ after a deal was signed with the IMF to fix government finances