Mar 08, 2011 (LBO) - Sri Lanka is among Asian countries that had lower risks of social unrest from high inflation due to popular administrations, higher growth and lower unemployment, Standard and Poor's Corporation, a rating agency said.
S & P said in a sovereign rating review of the Asia Pacific region that inflation has become an "important risk" to economic and social stability.
These countries included Vietnam, Sri Lanka, India, Indonesia, Mongolia, Cambodia, Cook Islands, Fiji, Pakistan and Bangladesh.
"In a number of other countries, the risk of social unrest is present but mitigating factors are currently strong," S & P said.
"These are China, Vietnam, Sri Lanka, Malaysia, and Cambodia; the risks in these countries are mitigated by some combination of strong growth, low unemployment, and popular support for the government."
The region's central banks have almost all begun tightening policy by now, except Sri Lanka.
Sri Lanka's inflation at 7.8 percent in February is higher than some of the countries which have tightened policy. But the island's populations had suffered much higher levels of chronic inflation from the Central Bank in the past of around 20 to25 percent.
S & P said private sector credit rose 23.1 percent to November which the Central Bank had described as "a high growth momentum that needs to be watched closely."
"Nonetheless, Sri Lanka's monetary policy remains accommodative, with a 50 basis point cut in policy rates in January going against the regional and global trends--underscoring the government's priority on maintaining high growth," S & P said.
S & P said the International Monetary Fund had said the policy stance was appropriate.
In late 2010 the Central Bank effectively loosened policy by ending permanently sterilization of excess liquidity from capital inflows. Excess liquidity has since begun to fall amid net sales of foreign exchange by the central bank indicating higher domestic demand.
The government's budgets were improving "improving modestly" S & P said.
In the 11 months to January, revenues had grown 14.4 percent which is likely to be marginally higher than nominal gross domestic product while expenses growth was lower at 6.6 percent.
As a result, total government debt for the period increased only 9 percent, well below nominal GDP growth, which can improve the debt ratio for 2010.
"We may raise the ratings on Sri Lanka on evidence of more comprehensive fiscal or structural economic reforms, resulting in faster-than-expected reduction of the vulnerabilities posed by the high debt and interest burdens, and still-narrow economic profile," S & P said.
"We may lower the rating if Sri Lanka deviates substantially from the IMF program's framework, or if expectations on the recovery in growth prospects and revenue improvements disappoint."
source - www.lbo.lk
No comments:
Post a Comment