Sri Lanka's peace dividends have waned: rating agency

Colombo, July 23 (IANS) International rating agency Moody's Investors Service said Tuesday that the policies of the Sri Lankan government have stabilized, although benefits from the post-civil war peace dividend have waned.

Moody's assessment was contained in its annual "Credit Analysis Sri Lanka" which assesses economic strength as low, institutional strength as moderate, government financial strength as low and susceptibility to event risk as moderate, reported Xinhua.

Sri Lanka's B1 sovereign bond rating reflects Moody's methodological assessment of these factors.

In July, Moody's revised the outlook on the sovereign rating to stable, from positive.

"The latest report is an update and does not constitute a rating action," Moody's said.

The report notes that while economic growth has slowed, to 6.4 percent in 2012 from an average of 8.1 percent in 2010 and 2011, the previous faster pace of growth was accompanied by an overheating of the economy.

The slowdown is primarily a result of the implementation of adjustment reforms in early 2012.

"Looking ahead, Moody's projects that growth will be 6 percent to 7 percent in 2013 and 2014. At this pace, inflation should remain in the single digit range, although the policies of the government will likely continue to have a growth bias," the report added.

Furthermore, although government debt has declined after the end of the nearly three-decade long civil war in 2009, debt reduction has stalled in the past two years and government bond yields widened in both nominal and real terms, as the fiscal payoffs from the peace dividend have dissipated.

Moody's expects the government debt to Gross Domestic Production (GDP) ratio to touch 80 percent in 2013 and 78 percent in 2014, broadly unchanged since 2011 and compared with 86 percent in 2009.