Lanka's integration into global economy lauded

The international rating agency Moody's, in its latest credit analysis report has lauded Sri Lanka's integration into the global economy, pointing out that "Sri Lanka's per capita income of US$ 2,800 is the wealthiest among its South Asian neighbours". Sri Lanka's current B1 sovereign rating is based on its high per capita and growth, Moody's said in the analysis issued on Friday.

The report highlighted several positive aspects of Sri Lanka's economy including the enrichment of the GDP by worker remittances overseas which have been growing at over 15 percent annually and tourism, with earnings exceeding US$ 800 million. It also noted that the end of LTTE terrorism has helped the growth rate to move up to over 8 percent. Inflation was also down to a single digit compared to double digits a few years ago.

"However the rehabilitation and reintegration of the Northern and Eastern provinces ensuring stable macroeconomic environment conducive to attract domestic and foreign investments will be the key [to further growth]", the analysis said. Moody's Investors Service said that the outlook for Sri Lanka's B1 rating is positive, but it hinges on the effective management of macroeconomic challenges as the economy faced a number of challenges in the past year.

"Sustaining strong growth and price stability will entail steady and effective macroeconomic management and further improvement in the investment environment." Renewal of the International Monetary Fund's stand-by agreement with Sri Lanka, which ended earlier this year, would be positive for the country's external payments position, the Report said.

"The steady moderation in the budget deficit to 6.2 percent targeted for 2012 from a 9.9 percent in 2009, and a budgeted deficit of 5.8 percent in 2013 underscores the Government's commitment and success in fiscal consolidation. The stability of the Government limits helps ensure policy continuity. The continued progress in reconciliation would also ensure, social stability and boost economic growth in Sri Lanka's economy," Moody's analyst Thomas J. Byrne wrote.

"Developments in the country's balance of payments position will be central to the rating outlook. The policies taken earlier this year have limited downward pressure on the external accounts which emerged in late 2011.

While reserves stabilised recently, a slowdown in exports suggests that Sri Lanka's vulnerability to external risks has not receded," the Report said.