The Sri Lankan government has criticised Fitch Ratings after the agency downgraded the Long-Term Foreign-Currency Issuer Default Rating (IDR) of Sri Lanka from ‘Stable' to ‘Negative’, directly citing new Sri Lankan president Gotabaya Rajapaksa’s actions.
The ratings agency had blamed a “significant shift in fiscal policy” in Colombo for the downgrade but Sri Lanka’s finance ministry claimed “erroneous assumptions” had been made, reports Xinhua.
"Taking all into consideration, the best estimate of the budget deficit would be around 5.5 percent of GDP in 2020, as against the Fitch's projection of 6.5 percent of GDP," the ministry said.
"What is lacking throughout the Fitch's analysis is the impact of offsetting measures that the government is undertaking to meet any revenue loss, and lack of due recognition of the favorable macroeconomic impact that such policies would deliver over the medium-term,” it added.
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Fitch had earlier stated the announcement of "sweeping tax cuts" will lead to an upward trajectory of the gross general government debt, which already stands at 85% of GDP. "We believe the departure from the previous revenue-based fiscal consolidation path has created policy uncertainty and increased external financing risk for the sovereign, particularly given the large external debt repayments due in 2020 and beyond," it added.