S&P decision ‘shocking’
The Central Bank states:
‘The Sri Lankan authorities are deeply shocked to note the
incredulous decision of S & P to downgrade Sri Lanka’s stable outlook to
negative as from Friday. The authorities also consider the contents of
the Rating Agency’s report as outrageous, arbitrary and biased,
especially in the context of current favourable developments that are
taking place in the country. In that context, the Sri Lankan authorities
totally reject the rating report.
‘Over the past few days, the country has received higher than normal
foreign exchange inflows pursuant to the victory against terrorists. At
the same time, this year’s private remittances have comfortably exceeded
the trade deficit.
‘In fact, the country recorded the highest-ever inflow of remittances
during the month of March 2009. Moreover, inflows into the stock market
have been improving significantly during the last few days which has
resulted in the rapid increase of all stock market indices.
‘Business confidence levels have also been improving rapidly over the
recent past, with the Sri Lankan diaspora and other international
investors beginning to invest in Sri Lankan Government Treasury bills
and bonds, in significant amounts.
‘As a result, the exchange rate which stood at approximately Rs.
120/- per US dollar a few days ago has appreciated towards Rs.115/- per
US dollar. In that scenario, to support competitiveness, the Central
Bank has been absorbing significant amounts of foreign currency from the
forex market, which has resulted in the Central Bank building up its
reserves rapidly. In addition, following the monetary policy relaxation
measures taken by the Central Bank and the inflows of foreign currency,
domestic interest rates have reduced, and the private sector credit is
now beginning to increase. In this favourable scenario, international
investors too have re-affirmed their confidence in the Sri Lankan
economy, and as a result, the spread on the Sri Lankan Sovereign Bond
has reduced sharply by well over 500 basis points over the past few
days. It is incredible that S & P could have overlooked all these
positive trends and signals.
‘It is also astonishing that S & P has taken the highly damaging
stand of projecting the potential depreciation of the Sri Lanka rupee in
its report. Such subjective and arbitrary comments are clearly
unprofessional. Such comments could only be due to the rating committee
obviously misreading the real trends in the economy, or due to these
viewpoints being expressed under pressure for reasons best known to
‘It is also very strange that the S & P has taken the decision to
downgrade the outlook, knowing fully well that the Managing Director of
the IMF has already indicated that a resolution to the issue of the SBA
facility requested by Sri Lanka is being worked out soon.
‘The Sri Lankan authorities have, even in the past, pointed out
several instances where the rating reports of S & P have been clearly
biased. It is also disturbing that S & P has, on many occasions, shown a
marked reluctance to give due consideration to the many factors that are
positive in the Sri Lankan economy.’