January 12, 2015 / 12:05 PM / 5 years ago

Fitch: Sri Lanka Election Positive Sign for Political Stability

(The following statement was released by the rating agency) HONG KONG/SINGAPORE, January 12 (Fitch) The orderly conduct during Sri Lanka's presidential election, and the peaceful handover of power to newly elected opposition candidate Maithripala Sirisena on 9 January, is a positive signal for political stability, says Fitch Ratings. Low governance standards are a key weakness for Sri Lanka, as reflected in its 'BB-' rating; a smooth presidential transition may boost foreign investor confidence and mark the start of reforms needed to improve fiscal credibility. Other key credit weaknesses for Sri Lanka are low foreign direct investment, a high level of net debt and weak public finances. The country ranks far below its 'BB'-range peers on political stability in the World Bank's Worldwide Governance Indicators, placing it in the 26th percentile versus a 'BB' median of 41st; on accountability, Sri Lanka is in the 29th percentile versus the peer median of 45th. The quick and smooth transition of power indicates a basic level of political stability, which could bolster foreign investor confidence. That would in turn provide more stable funding for the persistent current account deficit. Notably, with FDI only covering a small portion of the current account, Sri Lanka's net external debt is more than double that of the 'BB' peer group median at about 43% of GDP as of end 2014. The public finances are also a key credit weakness as evidenced by relatively low level of government revenues as a percent of GDP and high government debt ratios. As such, the formulation of a credible budget consolidation path by the new government would be a credit positive. New President Sirisena has provided limited clarity on the specifics of his economic agenda so far, and it remains to be seen what impact the new government's policies would have on the economy and the sovereign's creditworthiness. Sirisena promised to make constitutional changes to abolish the executive presidency and foster other political and governance reforms during his campaign, and these are likely to be a key priority in the early months of his administration. However, uncertainty remains as to his ability and willingness to push through with such measures, and the long-term effect these would have on governance standards. Contacts: Sagarika Chandra Associate Director Sovereigns +852 2263 9921 Fitch (Hong Kong) Limited 2801 Tower Two, Lippo Centre 89 Queensway Hong Kong Justin Patrie Senior Director +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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