S & P rating poor
The Sri Lankan authorities are deeply shocked to note the incredulous
decision of S & P to downgrade Sri Lanka's stable outlook to negative as
from today. The authorities also consider the contents of the Rating
Agency's report as outrageous, arbitrary and biased, especially in the
context of current favourable developments that are taking place in Sri
Lanka. In that context, the Sri Lankan authorities totally reject the
rating report.
Over the past few days, the country has received higher than normal
foreign exchange inflows pursuant to the victory against terrorists. At
the same time, this year's private remittances have comfortably exceeded
the trade deficit. In fact, the country recorded the highest-ever inflow
of remittances during the month of March 2009. Moreover, inflows into
the stock market have been improving significantly during the lat few
days which has resulted in the rapid increase of all stock market
indices.
Business confidence levels have also been improving rapidly over the
recent past, with the Sri Lankan diaspora and other international
investors beginning to invest in Sri Lankan Government Treasury Bills
and bonds, in significant amounts.
As a result, the exchange rate which stood at approximately Rs. 120
per US Dollar a few days ago has appreciated towards Rs. 115 per US
Dollar. In that scenario, in order to support competitiveness, the
Central Bank has been absorbing significant amount of foreign currency
from the forex market, which has resulted in the Central Bank, building
up its reserves rapidly.
In addition, following the monetary policy relaxation measures taken
by the Central Bank and the inflows of foreign currency, domestic
interest rates have reduced, and the private sector credit is now
beginning to increase. In this favourable scenario, international
investors too have re-affirmed their confidence in the Sri Lankan
economy, and as a result, the spread on the Sri Lankan Sovereign Bond
has reduced sharply by well over 500 basis points over the past few
days.
It is incredible that S & P could have overlooked all these positive
trends and signals. It is also astonishing that S & P has taken the
highly damaging stand of projecting the potential depreciation of the
Sri Lanka rupee in its report. Such subjective and arbitrary comments
are clearly unprofessional. Such comments could only be due to the
rating committee obviously misreading the real trends in the economy, or
due to these viewpoints being expressed under pressure for reasons best
known to them.
It is also very strange that the S & P has taken the decision to
downgrade the outlook, knowing fully well that the Managing Director of
the IMF has already indicated that a resolution to the issue of the SBA
facility requested by Sri Lanka is being worked out soon.
The Sri Lankan authorities have, even in the past, pointed out
several instances where the rating reports of S & P have been clearly
biased. It is also disturbing that S & P has, on many occasions, shown a
marked reluctance to give due consideration to the many factors that are
positive in the Sri Lankan economy. This stance naturally casts serious
doubts about their ability to provide an impartial and professional
judgement about Sri Lanka's credit. In that light, the Sri Lankan
authorities will now be compelled to review its relationship with this
rating agency. At the same time, the Sri Lankan authorities will also
take necessary steps to directly communicate the many positive and
emerging features of the Sri Lankan credit profile, to the many
investors and stakeholders who have an interest in the Sri Lankan
credit, so that the negative impression created by the arbitrary report
of S & P is addressed appropriately.
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