Govt. says Moody’s failed to recognise SL’S recovery story
Says Moody’s downgrade of Sri Lanka at the beginning of economic revival is inexplicable Notes Moody’s failed to recognise and do justice to ground reality of ongoing economic recovery According to CB estimates, SL’S trade deficit is expected to be US $ 5.8bn, significantly down from US $ 8bn in 2019. Savings from import restrictions and reduction in oil bill expected to be over US $ 2.0bn
FDI inflows in 2020 expected to be over US $ 750mn, US $ 400mn less than in 2019 Fiscal deficit this year expected to be around 9% of GDP; govt. eyes positive economic growth Govt. to start initiatives of alternate bond issuances in Samurai and Panda markets to raise around US $ 500mn Govt. expects additional US $ 500mn with recently introduced measures to entice foreign investors to G-secs Budget for 2021 expected to be presented to Parliament on November 17
The government yesterday came up with a strong response against the recent sovereign rating downgrade by Moody’s Investors Service, stressing that the international rating agency had completely ignored the current ground realities and the ongoing economic recovery of the country, after the Covid-19related lockdowns.
On Monday, Moody’s downgraded Sri Lanka’s sovereign rating by unusual two notches to Caa1 (CCC+ equivalent), on deepening fiscal-side constraints, higher foreign debt risks and perceived weaknesses in the country’s institutions and governance. The outlook was changed to stable.
Money, Capital Markets and Public Enterprise Reforms State Minister Ajith Nivard Cabraal said this downgrade by Moody’s had not taken into consideration the recent positive developments in Sri Lanka’s economy.
“Moody’s rating downgrade fails to recognise and do justice to the ground reality of the ongoing rapid economic recovery, backed by vastly improved business confidence, arising from the return of political and policy stability after a lapse of five years,” he said.
Cabraal pointed out that Sri Lanka, like many of its peers in the emerging market group, experienced initial capital outflows, exchange rate depreciation, slowdown in activity and pressure on government finances, in response to the effects of the COVID-19 pandemic.
But with the successful handling of the crisis situation, the country has moved on to a recovery path of growth and stability. Sri Lanka’s external sector’s performance has improved significantly since May, with export earnings reaching PRECOVID averages of US $ 1 billion a month.
Independent economic think tank Verité Research pointed out that by the state allowing private sector entities to set off the cost of MBLS against their taxes, the country would be able to address its ongoing labour shortage issue and improve female participation in the economy, which in turn would help boost growth rates.
The current labour laws make it mandatory for the private sector employers to offer 12 weeks of fully-paid maternity leave. However, the outcome of the effort has made it expensive to higher women, placing women in the 20-40 age group at disadvantage.
The Annual Labour Force Survey (2018) reveals that women in this age group are 6.6 times more likely to be unemployed than women outside this group.
“Moving towards the tax deductible avenue will be a small shift in policy direction. It is only a relief and there is no actual spend taken over by the government,” said Verité Research Executive Director Nishan de Mel.
According to research carried out by the think tank, tax relief for MBLS would cost Rs.4.2 billion, which amounts to 0.25 percent of tax revenue.
The figure is significantly less, compared with the expenditure on other welfare programmes such as the fertiliser subsidy (Rs.26.9 billion), Samurdhi (Rs.39.2 billion) and employment and training for unemployed graduates (Rs.58.7 billion). In Budget 2019, the Finance Ministry did include a proposal to partially support MBLS via tax deductibility. However, no implementation was made in this regard; the topic was not pulled up for consideration since either.
“It is a small step for the government but will be a large leap for the country, as it will support women into employment and improve their contribution to the economy,” added de Mel.
In the global scenario, a total of 129 states support MBLS, out of which 96 are fully supported and 33 are partially supported.
It is observed that majority of the nations in the African region, South Asia and the Middle East, are yet to take a progressive step in this regard. Sri Lanka falls in the category of extending no state support for MBLS in the South Asian region, along with India and Bangladesh.