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Friday, April 04, 2008 - 7.20 GMT |
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Central Bank responds to Fitch rate revisions |
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Fitch's downward revision of ratings is not in line
with the recent improvements in the country's
macroeconomic fundamentals and its future outlook,
said the Central Bank in a response to revision of
ratings by Fitch dated April 3.
Fitch has revised the outlook on the Foreign and
Local Currency Issuer Default Ratings to Stable from
Negative reflecting the improvements in investment
climate in Sri Lanka. Fitch has also acknowledged
the fiscal consolidation efforts of the government
including revenue enhancing measures, containment of
expenditure on subsidies, improvement in debt
ratios, and the tightening of monetary policy by
the Central Bank.
Fitch has also highlighted the country's impeccable
debt service record together with the improvement of
the business environment in comparison to its
regional and rating peers, and the moderate external
debt service burden.
Notwithstanding these improvements, Fitch has
downgraded Sri Lanka's ratings, which is not
consistent with improvements in several
macroeconomic fundamentals which have been also
acknowledged by the Fitch, the Central Bank noted in
its response.
It further said:
"It is stated that Fitch has a concern on the
repayment of foreign currency debt. This statement
is not valid since, out of US dollars 1.5 billion
foreign currency debt repayment in 2008, a total of
around
US dollars 600 million is to domestic banks. Hence,
the roll-over risk is practically nil. Moreover,
even if these domestic foreign currency loans were
repaid, it will not change the total external
reserves of
the country as these foreign currency loans are
assets of domestic commercial banks, particularly
the two state banks. In addition, for the year 2008,
worker remittances are expected to increase to US
dollars 2.8 billion, foreign inflows to government
to US dollars 2.0 billion and the FDI to US dollars
700 million. In fact, during the first three months
of 2008, net international reserves of Sri Lanka
have increased by over US dollars 420 million from
their level as at end 2007.
"The Sri Lankan authorities also do not agree with
Fitch's opinion on the security situation in Sri
Lanka to the effect that the risk of disruptive
terrorist attacks, despite the military gain, cannot
be
wholly discounted. As stated by Fitch in its report,
the government has expanded its control in the
entire East and now is moving towards the North and
has already regained certain areas in the North,
such as in Mannar.
"The downward revision of ratings is based on
Fitch's pessimistic views on the security situation,
inflation and foreign currency borrowings. In view
of the above facts, Sri Lankan authorities believe
a downgrade in ratings is not in line with the
recent improvements in the country's macroeconomic
fundamentals and its future outlook."
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