Fitch upgraded Sri Lanka’s longterm foreign- currency rating to ‘BB−’ with a stable outlook from ‘B+’/positive in July 2011.
The ratings which Sri Lanka currently enjoys were credited to the “stabilization and recovery of the economy under the authorities’ IMF programme and efforts to consolidate the chronic budget deficit.
Howeve r, Foreign Dire c t Investment has been surprisingly slow to recover after the end of the country’s long civil war in 2009.”
While strong and improving external balance sheets buffer most of emerging Asia from ongoing volatility in global investor risk appetite, the report noted that Sri Lanka and India are the only Fitch-rated emerging Asian countries to run deficits on “basic balance” ( the current account plus net foreign direct investment).
“This structural weakness may help explain why the Indian rupee fell to a record low against the US dollar in December 2011, while Sri Lanka devalued its currency in November.”
The report further noted that the speed of credit growth and rising asset prices have led to AsiaPacific harbouring four of the world’s nine highest- risk financial systems; with Sri Lanka and Indonesia joining Hong Kong and China in the December 2011 assessment, according to Fitch’s macroprudential risk framework.
The report on the Asia- Pacific sovereign credit outlook said there were growing concerns about bank credit in the region.
“While many advanced economies “de-lever”, the speed of credit growth and rising asset prices have led to Asia-pacific harbouring four of the world’s nine highest-risk financial systems.”
“Hong Kong and China were joined by Indonesia and Sri Lanka in the December 2011 assessment, although Vietnam dropped out as credit growth eased” the report noted.