The reputed US-based Moody Economic Analytics Company predicts that the Sri Lankan economy would continue its recovery as the country puts behind it the sudden downturn due to the Easter bomb attacks last year. “We expect a strengthening tourism sector to drive continuing and gradual economic recovery in 2020, with real GDP growth picking up to 3.4% from the 2.6% we expect for 2019,” Moody said in its latest investor assessment report on Sri Lanka.
However, Moody said, “We do not expect the SME debt relief package or the broad-based tax cuts to significantly boost demand.”
The report said, “The debt moratorium is credit negative for Sri Lankan banks, while the sovereign because it risks increasing SMEs’ risk appetite and relaxing their attitude towards debt repayments. This in turn will undermine banks’ asset quality and constrain the sovereign’s credit profile.
SMEs in the manufacturing services, agriculture and construction sectors (see Exhibit 1) with an annual turnover of Rs. 16 - Rs.750 million ($88,000-$4.1 million) and outstanding loans of up to Rs. 300 million ($1.7 million) are eligible to apply for a moratorium on their principal repayments, with a grace period of up to an year. The moratorium also applies to SMEs with poor credit bureau records and nonperforming loans. Import credit facilities for items other than machinery and equipment, are not included in this moratorium. The scope of this debt moratorium is much wider than last year’s moratorium for the tourism sector1, given that SME loans constitute a significant part of the banking system’s gross loans.”
The Central Bank said that they expect the tax measures announced, would help boost the economic activities including agriculture, tourism, construction and other services sectors which would provide an impetus to achieve 4.0-4.5 percent growth in 2020.
“We are of the view that action taken by rating agencies are too hasty, as their decisions are based on short term political uncertainties. Such uncertainties could be very short lived only for a couple of weeks,” Central Bank Senior Deputy Governor Nandalal Weerasinghe earlier said.
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