Sri Lanka gets negative economic rating from S&P

February 16th, 2008 - 10:37 am ICT by admin  

By P.K. Balachandran
Colombo, Feb 16 (IANS) Standard and Poor’s rating services downgraded Sri Lanka’s economy from “stable” to “negative”, citing poor revenue collection, high deficits, runaway inflation and heavy indebtedness. The growth in spending had outstripped growth in revenue, and expenditures, especially on defence and interest servicing, were higher than planned, S&P said in a statement Friday.

The target set by the Sri Lankan government to reduce the fiscal deficit was vague, it complained.

And looking into the immediate future, it painted a gloomy picture saying that the government would be spending more to achieve economic growth, to maintain subsidies, and to meet the needs of the military battling the Liberation Tigers of Tamil Eelam (LTTE) separatists.

Growth in credit to the government and the private sector has been persistently high. Inflation too has soared to 20 percent.

The share of external debt has been growing, with the current figure being 49 percent. And within the foreign debt, the proportion of the more expensive and the shorter duration ones is high. This has eroded Sri Lanka’s traditionally favourable debt profile.

“Political conditions, including recent developments in the war with Tamil separatists, continue to weigh heavily on Sri Lanka’s rating,” S&P said.

“The official end of the ceasefire and the LTTE’s stepped up attacks on civilians in response to government’s military gains make peaceful resolution a more distant prospect. And the escalating conflict increases risks to the economy and the risk of reduced donor support,” it warned.


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