Fitch ratings does not reflect real position of SL economy: Minister Bandula
It is not a correct rating based on the work programme of the new government
The Fitch ratings’ outlook on Sri Lanka announced last week came under heavy criticism by Higher Education, Information and Technology Minister Bandula Gunawardana yesterday who termed it as a review made without considering the economic fundamentals of the new government.
“It is not a correct rating based on the work programme of the new government. It has not focussed the attention to the stress on the economy created by the short sighted policies of the previous government. They should have studied Sri Lanka’s economy, recent tax cuts, money market, the relief package announced by the government and the interest rates, thoroughly before announcing the ratings,” Minister Gunawardana added.
The US based global Fitch Ratings agency ‘Fitch Ratings Inc.’ on last 19th downgraded Sri Lanka’s sovereign credit to ‘negative’ from ‘stable’ over recent tax cuts, but had confirmed an underlying rating of ‘B’.
In its newest forecast on the country’s economy, the Fitch Ratings said the “Revision of the Outlook to Negative from Stable reflects rising risks to debt sustainability from a significant shift in fiscal policy and the potential for rollback of fiscal and economic reforms in the aftermath of November’s Presidential elections,”.
“We cannot agree with this downgrading as it does not reflect the correct position of Sri Lanka’s economy. The full reflection of the tax cuts on the economy could be known in next few months. The forecast of the Fitch is premature,” Minister Gunawardana stressed.
The tax cuts announced recently aim to stimulate the economy to a speedy recovery from the current economic slowdown in the flagging global economy, while enabling conducive environment to regain business confidence. The recently announced measures will augment the aggregate demand by simplifying the tax system coupled with the reduction/offsetting certain taxes. In the background of the policy framework that was in existence till the presidential elections held in November 2019, in the second quarter of 2019, the country recorded its lowest quarterly economic growth in the last decade, of 1.5 percent and it is anticipated that the overall growth will be around 2.5 percent in 2019. Such low growth could have had a ramification effect on the fiscal consolidation process in 2020. Therefore, it is in this background that we expect the tax measures announced, will help to boost the economic activities including agriculture, tourism, construction and other services sectors which will provide an impetus to achieve 4.0-4.5 percent growth in 2020, he added. “The new government is still trying to mitigate the negative repercussions of the narrow minded policies of the yahapalana government. To achieve that, this government needs some breathing space before making any analysis of the economy,” Minister Gunawardana noted.