COLOMBO (News 1st) – The international rating agency Moody’s has flagged Sri Lanka as being highly vulnerable to tightening financing conditions globally.
Early last week Sri Lanka witnessed its highest weekly outflow from government securities amounting to Rs 7.5 billion as foreigners continued to dispose of market bonds. This coincided with the rising US Treasury rates.
This year alone foreign net disposal amounted to Rs. 47.4bn worth of government securities. Adding to Sri Lanka’s woes the Sri Lanka rupee has depreciated by 4% year to date against the US Dollar.
Moody’s noted that Sri Lanka’s debt affordability would weaken further if the cost of new debt continues to rise and stay at these elevated levels for a lengthy period.
Global Chief Economist, Managing Director of the Economist Intelligence Unit, Asia Simon Baptist says there is a serious risk to the Sri Lankan economy as it relies on foreign capital with weak policymaking, political instability and growing debts. He says countries such as Pakistan, Sri Lanka, Indonesia, and Vietnam are likely to be among those most affected by a faster hike in interest rates by the Fed.
Sri Lanka’s financial liability management although touted by its fashion designer turned finance minister as being robust attracts negativity from experts who differ and say it is a weakness.
Former Finance Minister Ravi Karunanayake says there was no need to have international rating agencies point out the obvious since Ministry of Finance and Treasury Officials should have seen the writing on the wall a long time ago.