By Simon Miller
The continuing problems in the eurozone could spill over into Asia according to Fitch Ratings.
Speaking to reporters, Fitch's head of Asia Pacific sovereign ratings Andrew Colquhoun said the ratings of countries such as Sri Lanka, India and Indonesia could be at risk as global funding markets get disrupted by the continuing debt problems in Europe.
He said Sri Lanka was most at risk due to high external funding needs and a weak balance sheet with India and Indonesia also seeing the same vulnerabilities.
He told Bloomberg that the European crisis was likely “the single biggest” external issue that may affect credit ratings in emerging Asian economies.
At a conference in Hong Kong earlier today, Colquhoun told delegates: “If the pressures coming from overseas or from other parts of the world were to intensify, the countries that could most quickly see negative pressure develop on sovereign credit profiles include Sri Lanka, India and Indonesia. This is not to say that we are about to take rating action on any country mentioned here.”
Sri Lanka’s gross external financing requirements this year equate to 95 percent of the country’s reserves, according to Fitch projections. Indonesia and India both need outside funds totaling at least 30 percent of their sovereign reserves, Fitch’s presentations show.
India and Indonesia are rated BBB- by Fitch, its lowest investment grade. Sri Lanka is ranked three levels lower at BB-.
With Spain being downgraded to BB after it agreed to a €100bn bailout, attention turns to the Greek elections which could decide on whether the country stays in the euro.
Any Greek exit from the common currency would be “massively economically, financially and politically damaging,” and would probably lead to downgrades of Spain, Italy, Ireland, Portugal and Cyprus, Colquhoun said. The euro area is more likely to “muddle through” than break up, he said.