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Sri Lanka is amongst world's heaviest borrowers - Moody's

In proportion to what it earns, Sri Lanka borrows more than almost any other state, according to the ratings agency Moody’s.

Sri Lanka’s total debt was 545 per cent larger than the total government revenue in 2009, one of the highest for any sovereign assessed by Moody’s, LBO reports.

Only Lebanon rated 'B1' and Jamaica rated 'B3' had worse credit metrics, among countries rated by Moody's.
 
Sri Lanka President Mahinda Rajapaksa - who is also the Finance Minister - pictured on Saturday night with Secretary of Finance Ministry Dr. P.B. Jayasundara whilst preparing the final 2011 budget proposal. Photo/report Colombopage.
According to the government’s own figures, between January and April 2010, while total revenue was Rs234, 345 million, total government expenditure was Rs410, 864 million.
 
(See details on p19 of the government's 'Fiscal Management Report - 2010')
 
In other words the size of the government’s overspend (Rs167, 520 million) was over two thirds (69%) of its total income.

Any state needs to generate cash to function day-to-day. But Sri Lanka relies on borrowing, rather than revenue, to meet these needs.

Sri Lanka also needs to borrow to meet repayments on past borrowings. For example, over half the $1billion raised by the bond in October will go next year towards repaying past lenders.

In these circumstances, Sri Lanka’s short to medium term cash-flow is wholly dependent on at least maintaining its debt rating.

In September, ahead of the billion US dollar bond issue, Moody's rated Sri Lanka at a below-investment-grade 'B1' with a 'stable' outlook.
 
Fitch and S & P has rated Sri Lanka 'B+' four notches below the lowest 'BBB-' investment grade level.

Moody’s says its future assessment of Sri Lanka’s debt rating would depend on whether Colombo demonstrated a commitment to fiscal disciple and took action to cut the budget deficit.
 
Aninda Mitra, senior analyst and vice president of Moody's Investors Services told Lanka Business Online that the rating agency was waiting to assess whether the 2011 budget will indicate a “policy intention to improve fiscal fundamentals”. 

Meanwhile Sri Lanka has set up a ‘Sovereign Rating Committee’ which is charged with devising a strategy of taking the country’s rating to an investment grade 'BBB-' or higher over the next four years, the Sunday Times reports.