Sri Lanka vulnerable to external risk, needs reforms: Moody’s

Jan 04, 2012 (LBO) – Sri Lanka is still vulnerable to external shocks given, lower than expected year-end foreign exchange reserves and needs lasting reforms to better its credit rating, Moody’s, a rating agency has said. The island must further reduce government debt and budget deficits while a rapid and lasting improvement in credit strength depends on how successful ongoing reforms are, Moody’s Investors Service said in a credit report.

Sri Lanka’s B1 rating and positive outlook for its foreign-currency obligations is based on an assessment of the country’s low economic and government financial strengths, moderate institutional strengths and moderate susceptibility to event risks, it said.

The report notes that the positive outlook announced in July 2011 was prompted by an increasingly evident peace dividend, after the end of a 30-year ethnic war in 2009.

This was seen in greater macroeconomic and financial stability, a policy orientation of fiscal reform and economic growth, supported by a successful IMF program, and a reduction in political event risk following the end of the war, the rating agency said.

“However, a deepening current account deficit and lower-than-expected foreign