Fitch maintains ‘B+’ rating on Sri Lanka; outlook ‘Stable’

Fitch Ratings has maintained Sri Lanka’s ‘B+’ rating with a ‘Stable’ outlook. Fitch downgraded Sri Lanka by one notch from ‘BB-’ to ‘B+’ with a ‘Negative’ outlook in February 2016 on higher external debt.

However, in July 2017, the rating agency revised the outlook to ‘Stable’.

In a review to justify its latest rating stance, Fitch yesterday said Sri Lanka’s revised policy framework supports macroeconomic stability.

In Fitch’s view, policies aimed at fiscal consolidation and maintenance of a disciplined monetary stance under the framework of the three-year International Monetary Fund (Imf)-supported programme have improved Sri Lanka’s policy coherence and credibility.

Although the gross domestic product (GDP) growth of an estimated 3.9 percent in 2017 fell short of forecasts due to weatherrelated supply disruptions, Fitch expects growth to recover and stabilise at around 5 percent in 2018 and 2019.

The rating agency also said the shift towards greater exchangerate flexibility since 2H15 has strengthened the external position and the planned shift towards flexible inflation targeting should further enhance monetary policy credibility.

Fitch also acknowledged the relatively lower credit growth of around 15 percent in 2017 compared to the high of 20 percent in 2016.

Meanwhile, the rating agency said, Sri Lanka’s fiscal performance has improved following the approval and implementation of tax reforms.

Fitch expects Sri Lanka’s ratio of general government revenue to GDP to improve to 15.5 percent in 2018 and 16.2 percent by 2019, from a low of 11.6 percent in 2014, reflecting the passage of revenue enhancing measures under the IMF programme.