ECONOMYNEXT – Cuts by rating agencies in the outlook of Sri Lanka’s sovereign rating to negative in 2019 was worrying but ratings will improve in the next budgetary cycle, Central Bank Governor W D Lakshman said.
“The negative rating stances are worrying,” he told a business forum at the Ceylon Chamber of Commerce in Colombo.
Fitch cut the outlook on Sri Lanka’s ‘B’ rating to negative from stable on tax cuts. A month later Standard and Poor’s also followed suit.
But the ratings outlooks will become better with “budgetary improvements in the next budget cycle”, Governor Lakshman said.
Sri Lanka is now operating on a four month vote-on-account for which a supplementary estimate is being sought. With the parliament expected to be dissolved in March, a formal budget is expected after elections.
The 2021 budget is due in November.
Fiscal and monetary measures will boost growth. Political stability will also help , Governor Lakshman said.
Sri Lanka’s business confidence was expected to improve and external sector will make a ‘slow improvement’ he said.
An import contraction seen in 2019 was likely to continue this year. The trade deficit will also contract helped by marginal gains in exports, he said.
Sri Lanka’s 2020 budget deficit may rise to 7.9 percent of gross domestic product, an International Monetary Fund mission said.
Sri Lanka slashed taxes from January, including value added tax, in a bid to boost economic activity which had slumped as credit slowed in the wake of a currency crisis in 2018.
The new administration is expecting to boost activity and get more taxes from lower rates.
Sri Lanka’s external accounts will also show a “slow improvement”, with imports continuing a fall from 2019, tourism recovering from Easter Sunday attacks, though moderated by coronavirus.
With greater business confidence, portfolio and foreign direct investment will also improve, he said.