Govt refutes downgrading by S&P Global Ratings

The government said it is disappointed with the downgrading rating action by S & P Global Ratings (S&P) at a time when the Parliament of Sri Lanka has just passed, with an overwhelming majority, the new Government’s first full-year Budget for 2021, which laid out a carefully crafted medium term policy framework, alongside a novel orientation for a solid recovery of the economy in the period ahead.

“It is surprising to note that S&P, in its assessment has ignored the envisaged medium –term positive developments as a result of several key proposals presented in the Government Budget 2021 with regard to fiscal consolidation and deficit financing in the period ahead.” the Treasury said in a statement. 

As indicated in the Budget 2021, the Treasury said it has adopted a novel approach in relation to foreign financing, while enhancing the effectiveness of already secured financing channels, aimed at reducing the share of foreign financing of the budget deficit over the medium term. 

“Yet, S&P, in its medium term projections, grossly overstates the level of fiscal deficit and the external deficit of the country. In contrast, the forward looking financing model of the Government, which is skewed heavily towards domestic financing, will capitalize on the benefits of increased domestic savings and the low interest rate regime already in place given the subdued levels of inflation and well anchored inflation expectations at present,” 

In the immediate future, the Treasury noted that the ongoing economic recovery is expected to contribute to boost revenue for the Government. “The envisaged improvements in economic growth, supported by low interest rate regime and incentives being offered for investment, would help consolidate government debt in the period ahead. Reflecting the impact of measures already put in place by the Government, the relative share of outstanding foreign debt has declined notably at present.”