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Moody’s warns ill effects of acquisition law

14 Nov 2011 - {{hitsCtrl.values.hits}}

International ratings agency, Moody’s has stated that the recently passed Expropriation Bill by the government would be credit negative for Sri Lanka and deter foreign investors coming to the country.

“An unintended consequence of this expropriation measure may be that it casts a cloud over the investment climate. If so, it would be credit negative for Sri Lanka” the report noted.

The report, titled ‘Sri Lanka Expropriation Bill Dampens a Positive Credit Story’ which recognized the economic progress that the country had made in the post-war climate-such as the heavily touted 8% real GDP growth statistic, went on to criticize the governments’ move to acquire underperforming enterprises.

“Despite authorities’ statement that this is a one-off move and that further expropriation will not occur, the measure may undermine the predictability of future policies and increase investor uncertainty. The government’s seizure of assets creates ambiguity around the protection of private property in Sri Lanka” the report noted.
The report further said that at present it remains unclear as to how performance will be revived and whether the state would manage these businesses or whether they would instead be resold to other investors.

More criticism was also heaped on the fast-track procedure used by the government, in an interventionist manner which has more recently become the norm.

“The use of the fast-track procedure, which we believe limits public scrutiny, largely reflects the tendencies of the current government to exert strong and direct influence over the economy.”

The report concluded maintaining that investor confidence is crucial to Sri Lanka’s ambitions of reaping the peace dividend and whilst the government had taken positive steps to make the country more attractive to investors, the Expropriation Act was a step in the wrong direction.

Interestingly Moody’s was one of the ratings agencies, along with Fitch and Standard and Poor which had upgraded Sri Lanka’s credit ratings earlier this year.

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Moody’s warns ill effects of acquisition law

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