Ratings - Get the picture right

Sri Lanka has immense potential to benefit from the credit crunch the US markets are presently facing, but not before the country corrects the investor perception of just ‘how risky’ it is, according to a Malaysian economist.

“There is a credit crunch affecting major institutional investors, who are looking to diversity into markets that are not coupled with the US markets. China, Brazil, India and Sri Lanka are such potential markets, but the immediate priority for Sri Lanka is to correct the investor perception of just how risky the country is,” Dr. Yeah Kim Leng, Group Chief Economist, RAM (Rating Agency Malaysia) Holding told The Sunday Times FT.

Suresh Menon, Executive Director, RAM Holdings concurred saying that a parallel situation to that of Sri Lanka will be Ireland’s promotion of its market in the early 90s, despite the IRA problems the country was facing at the time.

“The country needs investor building, which needs investor confidence. Countries such as Malaysia and Korea launched investor missions to publicise their markets when they started out,” Dr. Yeah explained. He noted that Asian economies have the ability to achieve intra-regional trade and investment, while the momentum of cross border economies is rising.

He said more and more investors are actively looking towards markets that are de-coupled with the US economy. “They are looking towards East Asia and South Asia,” he added. He pointed out that Sri Lanka’s private sector investment is at 12 percent of gross domestic’s product (GDP) per annum, and rising, whereas private sector consumption is at 3.6 percent of the GDP. “Sri Lanka’s investment growth has been rising at 10 per cent over the last five years and private investment has been hovering at 26 percent which is a fairly strong momentum,” he said.

Dr. Leah noted that the share of investment to GDP is 25 to 30 percent. “The relative size of government spending is not that high. “It is less than one percent in terms of the overall share of the economy,” he pointed

He said that if the ground situation takes a turn for the better, the six percent growth of GDP is an underestimation.

Dr. Yeah and Menon visited Sri Lanka for the launch pertaining to renaming RAM Holding’s subsidiary, Lanka Rating Agency as RAM Rating (Lanka) Ltd, in keeping in line with restructuring their holding company in Malaysia. The company was in operation for three years with the former name.

“The re-branding follows the reorganisation of RAM Holdings and as part of its restructuring we are also embarking on a regional expansion programme,” Menon said.

Priya Thamotheram, CEO RAM Rating (Lanka) Ltd said the company already rates two thirds of the finance firms in the country and about seven insurance companies.

“Our focus will also be to rate corporates this year,” she added.

Menon said the company will also be sharing its experience on developing corporate bond markets.