New Sri Lankan government’s economic policies not clear enough, says Moody's

January, 13, 2015

Sri Lanka’s credit worthiness will be decided on the economic development that the new government would be able to maintain in the future and the ability to manage its government debts, says prominent international rating agency Moody’s.

Though the new President has come to power on the basis of reforming good governance, preventing bribery and corruption and establishing peace and unity among the races, it is still not very clear whether the current budgetary proposals and investment policies would continue to be implemented or changed, Moody’s has pointed out.
Moody’s has added that within the next few days it expects a clear perspective of the appointment of Sri Lanka’s new Governor of the Central Bank and the new government’s economic priorities.

Analysts stated that President Maithripala Sirisena’s new government would go in for a constitutional amendment before April this year.

Meanwhile, if there is a pay hike for the state sector employees and pensioners as promised in Maithripala Sirisena’s election manifesto, there is a risk of government expenditure rising further. The International Monetary Fund has continued to warn that Sri Lanka’s government’s tax revenue is woefully inadequate to cover its debts.

The international rating agency says that Sri Lanka’s new president has taken over a fast-growing economy, but one with a large government debt burden.

Sri Lanka’s government debt 78 per cent when compared to its Gross National Product (GNP) and 40 per cent of its revenue is spent as interests on loans obtained.

Sri Lanka faces a high credit risk since around 43 per cent of the government loans are in foreign currencies.
Moody’s also points out that since Sri Lanka has gone in to huge investment projects with China, if the new government takes any decisions over them, then it could cause grave impacts on Sri Lanka’s economic development.