Sri Lanka too reliant on foreign borrowings: Fitch

Oct 24, 2013 (LBO) – Sri Lanka is too reliant on government foreign borrowings and foreign currency risks are also rising for borrowers who may not have forex revenues, Fitch Ratings has said. Sri Lanka has been unable to attract high levels of foreign direct investments since the end of a war with FDI averaging 1.2 percent of gross domestic product since a war ended in 2009.

“The country has therefore banked on the promise of higher future growth to successfully issue more foreign debt,” Fitch said.

The state foreign debt burden was now 57 percent of gross domestic product (GDP), which was much higher than all other Asian emerging markets except Mongolia.

Sri Lanka’s currency has been relatively stable.

“Fitch Ratings sees the relative currency stability as due to a less open onshore capital account which provides insulation from volatile global capital flows, as well as an increasing ability to tap offshore global bond inflows,” the rating agency said.

“This strategy, however, is adding to the stock of gross and net external liabilities, and carries medium-term credit risks.”

Inflation has been brought down to 5-7 percent levels.

Fitch says monetary eas