Poor Standard and Poor

The Central Bank has quite rightly taken exception to International Credit rating agency Standard and Poor’s downgrading of Sri Lanka’s Sovereign rating despite the many economic indicators that show a positive improvement in the country’s fiscal position.

Standard and Poor which has downgraded Sri Lanka’s sovereign rating from B plus to B purely on the basis of the decline in the country’s foreign exchange reserves has certainly missed the woods for the trees.

It has failed to take cognizance of the significant macro economic variables which has not only stimulated growth but also contributed to social development. Instead has designed to harp on the decline in foreign reserves.

The Central Bank quite naturally referred to this as a global phenomenon under the present international financial crisis and that it was grossly unfair to single out Sri Lanka based only on this criteria.

It has quite logically pointed out to the other features such as macro economic stability due to the elimination of the fuel subsidies the slashing of the budget deficit from 10.8 per cent to 7 per cent over a seven year period and the decline of the country’s outstanding debt to GDP ratio from 105.6 per cent in 2002 to 75 per cent at present.

Certainly S&P has come to their conclusion without a proper assessment of current developments and future outlook.

This of course is typical of the Western Credit rating Agencies which is known to have been working to sinister agendas. The credibility of these Agencies have come in for censure even before the US congress.

This is what the New York Times of October 30 has to say about Credit rating agencies.

“US politicians hauled bosses of the three main agencies before Congress for hearing into the causes of the credit crisis, and attacked them for presiding over a corrupt and possibly a fraudulent system.

In front of a packed meeting room, members of the House oversight committee unveiled internal emails and instant messages that showed how senior executives at Standard and Poor, Moody and Fitch warned that their firms were engaged in a “race to the bottom” that compromised standards for a share of the profits from boom-time credit markets.

“The story of the credit rating agencies is a story of colossal failure” said Henry Waxman, committee chairman. “They broke a bond of trust.... and the result is that our entire financial system is now at risk”.

So much for the credibility of Credit rating agencies such as Standard and Poor whose doings have now been exposed by no less a body than the US Congress.

Now that the cat is out of the bag we need not be overly concerned about the verdict of dubious credit rating agencies and continue to bolster our domestic economic indicators unhampered by arcane concepts such a credit ratings.

As indicated by the Central Bank S&P has deliberately neglected the recent improvements in the country’s macro economic fundamentals”. It has pointedly omitted the significant economic variable viz inflation. which is 16.3 per cent, down from 28.2 per cent in June.

The main opposition UNP which consider these pronouncements by International credit agencies as gospel and paint a bleak picture of the country’s economy it is hoped would have learnt from the revelations in the New York Times and not be too quick to quote from the script of these dubious credit rating agencies in the future for narrow political gain.

The country’s economy is set on the right course to achieve it’s long term objectives and the Government has no reason to be deterred by these pronouncements of these credit rating agencies. That it has kept the economy afloat despite the fallout of the current global recession speaks volumes for the pragmatic polices pursued by the Government.

This is an even more commendable achievement given the huge resources expended on the war and keeping all welfare measures in tact.

Besides the recent clinching of a sovereign bond loan by the Government to the tune of US $ 500 million is in itself a ringing endorsement of it’s economic policies by multilateral agencies. There has also been no withdrawal of economic aid nor slashing of donor funds for the Government’s development projects.

It can do well without character certificates by the likes of Standard and Poor which has already blotted it’s copy book before the US Congress.