Sri Lanka external stability: retaining investor confidence is key: Moody’s

Mar 16, 2013 (LBO) - Retaining the confidence of external portfolio investors in key to maintaining stability in the exchange rate and balance of payments, Mood's Investors Services has said. In 2012 central bank also transferred its year-end profit to the Treasury not as rupee liquidity but as a book entry against maturing Treasuries, again locking up foreign reserves and preventing potential consumption and credit.

Meanhwhile Moody's said national debt was down from 105 percent of gross domestic product levels a decade ago though it estimates the ratio to have climbed to 85 percent of GDP, from 78.5 percent a year earlier.

But it expressed concerns about the volume of interest rate payments.

"External debt has been primarily concessional in nature, but this trend is reversing as Sri Lanka has attained ‘middle income emerging market status’ and increasingly depends on commercial financing," Moody's said.

"The fiscal burden of servicing this debt is high, and interest payments amounted to as much as 38 percent of revenues in 2011.

"Debt affordability, according to this measure, remains amongst the weakest of all rated sovereigns, barring that of Lebanon (B1/Stabl