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Sri Lanka hits back at Fitch Rating over downgrade

18 December 2021 02:36 pm - 38     - {{hitsCtrl.values.hits}}


The Central Bank of Sri Lanka (CBSL) has denounced the assessment by Fitch Ratings (Fitch) that downgraded Sri Lanka’s international sovereign rating. 

In a statement, the Central Bank said, 
“Reckless action by rating agencies continues despite being informed of the imminent inflows as outlined in the Six-month Road Map. Investors are advised not to be dissuaded by such action. Progress of inflows will be announced during this week."

The full statement -

Fitch Ratings (Fitch), in a rather hasty move, downgraded Sri Lanka’s international sovereign rating on 17 December 2021, demonstrating its failure to recognise the positive developments taking place in Sri Lanka, in an environment in which the entire world is grappling with multiple waves of the COVID-19 pandemic. This action resembles the recent unwarranted downgrade by Moody’s Investors Service a few days prior to the announcement of the National Budget 2022. The sense of urgency on the part of an internationally recognised rating agency to downgrade Sri Lanka is inconceivable, particularly considering the fact that Fitch was being constantly updated by Sri Lankan authorities on the latest developments in all sectors of the economy and imminent foreign exchange inflows.

In particular, despite the lockdown measures that had to be introduced in the third quarter of 2021, the real economy averted a deep contraction during the quarter, signalling Sri Lanka’s adaptability to the new normal. Real GDP, in fact, expanded by 4.4 per cent (year-on-year) during January-September 2021, reaffirming the strong possibility of above 4 per cent growth in 2021. High frequency data on activity point towards a strong recovery of the economy surpassing the pre-pandemic level. The Manufacturing Purchasing Managers’ Index reached 61.9 in November 2021, the highest reading for a month of November on record, and way above the pre-pandemic level of activity. Indices of the Colombo Stock Exchange reached historical highs, with a large number of Initial Public Offerings taking place in 2021. Credit extended to the private sector expanded by over Rs. 685 billion in the ten months to October 2021, compared to about Rs. 260 billion in the same period last year.

The trade deficit continued to decline from May 2021 on a month-on-month basis, supported by record high export earnings. Earnings from merchandise exports recorded an all time high in October 2021, and preliminary information indicates that earnings have exceeded this record level in November 2021. With the exchange rate remaining stable since April 2021, excepting a few speculation-driven deviations, the conversion of export proceeds and other foreign exchange earnings has also improved substantially in recent weeks. An exponential growth in tourist arrivals is observed on a monthly basis, indicating an early reversal of the annual foreign exchange revenue loss of around US dollars 5 billion in the period ahead.

The prospects for workers’ remittances are bright, with the resumption of worker migration, increased demand for Sri Lankan workers particularly from the Middle East and efforts to facilitate worker remittances through formal channels through an attractive incentive package. With such measures, the external current account balance is expected to be maintained at growth supporting levels, thereby accommodating equity capital to the financial account through direct investment to the identified projects in the Colombo Port City and Industrial Zones, in addition to the expected monetisation of non strategic and underutilized assets.

These developments and the rapid vaccination drive, which is being rolled out nationally, would help realise the potential of the economy over the near to medium term.

Fitch has also failed to recognise the fiscal reforms introduced through the National Budget 2022. With the introduction of new tax measures, upgraded tax administration systems, and the revival of the economy, the year 2022 is expected to deliver a substantial increase in Government revenue. Increasing the retirement age of public sector employees and measures to enhance the viability of state owned business enterprises are notable reforms, and issuing quarterly warrants for Government institutions instead of annual warrants are expected to instill financial discipline in the utilisation of the allocations, thereby cushioning the expenditure side. Such revenue and expenditure side measures would pave the way for a reduction in the fiscal deficit and financing needs of the Government, contributing to a sustainable debt level.

The domestic market has responded positively to expected path of fiscal consolidation, and interest rates have stabilised, following an initial overshooting, at market clearing levels. The Central Bank’s holdings of Government securities have also declined notably as a result of improved subscription at primary market auctions and active open market operations.

Contrary to Fitch’s unfounded claims on increased probability of a default event over the coming months, the measures undertaken by the Government and the Central Bank to secure support from friendly nations in the region are nearing fruition, thereby offsetting pressures on the balance of payments in the period ahead. The Six-Month Road Map for Ensuring Macroeconomic and Financial System Stability clearly articulated the expected cashflows by December 2021 and by March 2021, and the Government and the Central Bank remain confident that these inflows will materialise, and the end-2021 level of Gross Official Reserves will remain above US dollars 3 billion. Fitch appears to have completely ignored the standby SWAP facility with the People’s Bank of China of around US dollars 1.5 billion, of which the drawal is imminent. The credit lines and other inflows expected following high-level meetings in India and the Middle Eastern and other regional economies are also not given due consideration by Fitch in arriving at this decision.

The fact that Fitch Ratings decided to downgrade Sri Lanka without waiting until the first test date of 31 December 2021 shows nothing but recklessness, which could only hurt investors if decisions are made based on this downgrade. It must also be noted that the Government has given a clear assurance that Sri Lanka will honour all debt obligations in the period ahead, and Sri Lanka has not delayed a single payment even under severe stresses that were caused by the COVID-19 pandemic over the past two years.

Therefore, all stakeholders of the economy, including international investment partners, are requested not to be dissuaded by this unjustified rating action, but instead, work with Sri Lanka to surf the turbulent tides, which are expected to settle in the next few days. A detailed Press release on the progress of expected foreign inflows as envisaged in the Six-Month Road Map will be published this week.

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  Comments - 38

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  • Angry tax payers Saturday, 18 December 2021 02:49 PM

    Cabral you cannot hide your action of ruining of economy. Face the truth, Not stories

    Dee Saturday, 18 December 2021 02:52 PM

    What are we talking? We have the best Governor who will purchase Fitch and then decide the rating of the rest of the world! No where do we find such economic masterminds than SL! Since 2009!

    Curious Saturday, 18 December 2021 03:06 PM

    Road Map - Kelani Bridge???

    bowwa Saturday, 18 December 2021 03:08 PM

    Cabba didn't realize that Fitch is not a local petty kadai to put his jill mart!!! Such shameless imbeciles

    70YearsofIndependence Saturday, 18 December 2021 03:26 PM

    Bunch of clowns.. So both Moody’s and Fitch are wrong? Only Cabaa is right? Good lord, this country is doomed.

    Nadi Karunaratne Saturday, 18 December 2021 03:34 PM

    You don't get to mark your own homework.

    Fetch Saturday, 18 December 2021 03:43 PM

    Why are citizens perceiving that we keep shooting at our own feet. Exploding kitchens and exponential growth in vegetable prices are not the true indicators to be honest.

    Lankan Saturday, 18 December 2021 03:44 PM

    our politicians have made a collective political suicide with their wrong policies. Arrogant of some politicians have led the country into this situation. Send all Nakiyas home and get young blood into Parliament if you want to see any progress. Enough is enough. If you cannot read Chinese mind and mentality and attitudes. what kind of leaders are you? you will sell out our country soon if you stay in power any longer.

    German Saturday, 18 December 2021 04:03 PM

    International investors are not as foolish and ignorant as you are. You ruin the country.

    Spartacus Saturday, 18 December 2021 04:30 PM

    Bull shit kaiwaru statements. Fitch is talking for world investors while CBSL is stating keep th Rajapakse bullshit alive.

    Massdeen Saturday, 18 December 2021 04:31 PM

    The CB Governor roadmap doesn’t look rosy to succeed. Those rating agency understands our situation well

    Lion Saturday, 18 December 2021 04:31 PM

    As usual the central bank denounced the assessment of the rating agency for the latest assessment of our economy,When we feel the crunch due to lack of dollars in the country as citizens , position of central bank is a joke.

    Adwani Saturday, 18 December 2021 04:42 PM

    At least the Central Bank of Sri Lanka must set up it own Rating Agency or refuse to recognize Fitch Ratings basis as unacceptable in all dealings.

    roobarbie Saturday, 18 December 2021 04:48 PM

    Yeah, now go and defend buying super luxury vehicles to those greedy guts 225 sheltering in the buffalo shed at Diyawanna marshes. Poor people has nothing to eat, but these globe trotting useless individuals are selling the country to foreigners and dancing around in western countries. Shame on you Gotas and paksharajas for allowing this to happen. As usual, come into power with false promises, your downfall next time would be far worse than in 2015.

    Yohan Saturday, 18 December 2021 04:52 PM

    lol. Rather than trying to work out a realistic plan just hitting back at the world with comedy statements. Worst jokers ever running the country now. Looks like our government gone insane. Please resign guys

    Priyantha Perera Saturday, 18 December 2021 04:54 PM

    CBSL can you specify positive developments taking place in Sri Lanka for our information please. Also if you are confident of the imminent inflows of foreign exchange then why the hell are you instructing all commercial banks to convert the dollar remittances of the exporters

    Vignesh Saturday, 18 December 2021 05:01 PM

    Sri Lanka never agree from UN ,fiitch,IMf still many more to come.

    sam Saturday, 18 December 2021 05:07 PM

    Positive development is what sort of crap

    Curious Saturday, 18 December 2021 05:25 PM

    All talk and no show by the CB. If all the things that u said about FX shortage being short term and diverse ways of FX coming in has been right we won't be in this mess. We are in a whole and cabral is digging further

    Nomads Saturday, 18 December 2021 06:01 PM

    Send the rajapaksha 's to all parts of the world with a begging platter to collect dollars to kick up the Fitch rating.

    roni Saturday, 18 December 2021 06:05 PM

    Grow up Cabaa face the truth. These agencies are not interested in your road maps and projections all of which are heading for doomsday. Own up that this is a failed state in every respect.

    Punchi Banda Saturday, 18 December 2021 06:13 PM

    We have devoted all our financial, intellectual, material resources and international good will to keep our minorities subjugated and us including our Theros in luxury. Now everything had come back to bite us in our ruined country and those we put down are going to be dancing on our grave

    N SENA Saturday, 18 December 2021 07:17 PM


    Sam Silva Saturday, 18 December 2021 07:21 PM

    We are the one of poorest and corrupt country in the whole world and want to hit back Fitch ratings. What a joke.

    Buddhist Saturday, 18 December 2021 07:38 PM

    Cabraal must resign immediately.

    harold Saturday, 18 December 2021 08:15 PM

    central bank of Sri Lanka must setup it own rating agency with SL POLITICIANS, ha ha ha ...

    Kps Saturday, 18 December 2021 08:31 PM

    I guess world won’t believe in Central bank’s cooked- up figures any more.

    Eper Saturday, 18 December 2021 09:06 PM

    Lankans vote for communalism

    vithura Saturday, 18 December 2021 09:16 PM

    These 'gamayas' will never learn!

    G.Jeganathan Saturday, 18 December 2021 09:51 PM

    Cabba... Cabba. Go ahead.

    Charlie Saturday, 18 December 2021 10:37 PM

    arrogance and stupidity of the government has caused this economic disaster.

    Raymon Sunday, 19 December 2021 05:54 AM

    I have a dollar to spare . Finance Minister , please come with a begging bowl. I am happy to drop a coin in the bowl.

    DAR Sunday, 19 December 2021 07:19 AM

    Central bank needs focus on their key areas such as price stability

    Sunil Sunday, 19 December 2021 07:37 AM

    Can we believe our own central bank more than Fitch? At least will prospective investors do so?

    Rf Sunday, 19 December 2021 07:40 AM

    What else can they do other than hitting back. These ratings are not done at government cost and will stand and used by lenders…

    sam Sunday, 19 December 2021 08:29 AM

    Fitch is not an organisation to fool the people like the CB who continue to fool everyone everyday

    Appuhamy Sunday, 19 December 2021 09:39 AM

    We had the best Finance Minister in the world earlier who may enter the cell anytime and we now have the best CB Governor. The mole hatha Finance Minister is presently holidaying abroad when the country is begging for dollars.

    Cab Sunday, 19 December 2021 11:08 AM

    CBSL is under the control of cabinet ranked Governor knows better than Fitch rating experts and no wonder he is annoyed at the ratings. We always challenge anything against our country that is our tradition.

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