By Paul A Ebeling Jr
An international bank and rating agency have warned that Sri Lanka’s economy faces slower growth and stronger external pressures in the year ahead, said reports released Thursday.
Although the Sri Lankan government will likely continue to make gradual progress in reducing its deficit, the debt burden will remain high, the report from Moody’s Investors Service NYSE:MCO,said. “The absence of a new funding program is credit negative from the perspectives of external payments and growth,”the rating agency said.
Moody’s views were contained in a just-released report, titled “Sri Lanka; The Post-IMF Backdrop: Downward Growth Pressures and Elevated External Pressures”.
The special comment examines the credit implications of Sri Lanka’s (B1/Positive) decision on 12 February to not seek a new funding program from the IMF, following the successful completion of a US$2.6-B Stand-by Arrangement in Y 2012
Moody’s believes the Sri Lankan government will continue to reduce gradually its budget deficit, but the composition of deficit reduction will be key.
Supplier cash arrears, weak structural revenue reform and contingent liabilities in the state owned enterprise sector are concerns. Moreover, high inflation and rapid credit growth are risks to macroeconomic stability, Moody added.
Standard Chartered Bank LN:STAN, PINK:SCBFF, it was less optimistic of Sri Lanka’s growth rebound for multitude of factors and lowered improvement in Y 2013 GDP forecast to 6.7 from 7.7% previously.
“We see three reasons for a slower-than-expected recovery as the economy adjusts to bold Central Bank policy measures aimed at addressing growing imbalances: (1) more fiscal consolidation is required; (2) inflation is elevated, limiting room for near-term policy easing; and (3) the recovery in Sri Lanka’s main trading partners, the EU and US, remains slow,”the bank report said.
Courtesy Live Trading News