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ECONOMYNEXT – Lower remittances from the Middle East, which accounts for half of Sri Lanka’s migrant work earnings, will weaken the island’s credit quality, Moody's Investors Service says.
Weaker remittances will dampen benefits of lower oil prices for Asia Pacific sovereigns, the rating agency said in a report.
Gulf Cooperation Council (GCC) economies have been hit hard by the slump in oil prices.
“Generally, weaker remittances will immediately impact the recipient countries' credit profiles via their balance of payment positions,” Moody’s said.
“A prolonged fall would also hurt economic growth, given the importance of remittances to household incomes.”
Lower current account receipts, and therefore lower reserves, will have a “particularly large effect” on the credit quality of those sovereigns that are already operating with a low reserve buffer, Moody’s said.
“Sri Lanka stands out in this regard, because it runs higher current account deficits already, and has thin foreign reserves: its reserve adequacy, as measured by Moody's External Vulnerability Indicator, is above the 100% threshold,” it said.
“A fall in reserves would further damage foreign investor confidence and hamper portfolio inflows.”
Moody's conclusions were contained in a new report titled "Sovereigns -- Asia Pacific: Falling Remittances from the Gulf Dampen Benefits of Lower Oil Prices."
“Generally, weaker remittances will immediately impact the recipient countries' credit profiles via their balance of payment positions,” Moody’s said.
“A prolonged fall would also hurt economic growth, given the importance of remittances to household incomes.”
Remittance dependence as a proportion of Gross Domestic Product is typically higher for smaller countries, Moody’s said.
Remittances account for 09 percent of Sri Lanka’s GDP.
(COLOMBO, April 15, 2016)
Weaker remittances will dampen benefits of lower oil prices for Asia Pacific sovereigns, the rating agency said in a report.
Gulf Cooperation Council (GCC) economies have been hit hard by the slump in oil prices.
“Generally, weaker remittances will immediately impact the recipient countries' credit profiles via their balance of payment positions,” Moody’s said.
“A prolonged fall would also hurt economic growth, given the importance of remittances to household incomes.”
Lower current account receipts, and therefore lower reserves, will have a “particularly large effect” on the credit quality of those sovereigns that are already operating with a low reserve buffer, Moody’s said.
“Sri Lanka stands out in this regard, because it runs higher current account deficits already, and has thin foreign reserves: its reserve adequacy, as measured by Moody's External Vulnerability Indicator, is above the 100% threshold,” it said.
“A fall in reserves would further damage foreign investor confidence and hamper portfolio inflows.”
Moody's conclusions were contained in a new report titled "Sovereigns -- Asia Pacific: Falling Remittances from the Gulf Dampen Benefits of Lower Oil Prices."
“Generally, weaker remittances will immediately impact the recipient countries' credit profiles via their balance of payment positions,” Moody’s said.
“A prolonged fall would also hurt economic growth, given the importance of remittances to household incomes.”
Remittance dependence as a proportion of Gross Domestic Product is typically higher for smaller countries, Moody’s said.
Remittances account for 09 percent of Sri Lanka’s GDP.
(COLOMBO, April 15, 2016)
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