By: Isuru Parakrama
April 17, Colombo (LNW): The escalation of trade tensions led by higher United States tariffs is expected to have a ripple effect across the Asia-Pacific region, potentially undermining the credit stability of several nations, according to recent analysis by Fitch Ratings.
The global ratings agency has warned that Sri Lanka could be amongst the countries adversely affected, particularly when country-specific tariff measures come into effect.
Fitch has observed that heightened trade barriers, coupled with growing economic uncertainty, are likely to dampen export performance and curb export-driven investment across Asia.
Such developments are projected to have a cooling effect on regional economic growth, with both emerging and advanced economies feeling the strain.
For countries like Sri Lanka, which are navigating fragile post-crisis recoveries and ongoing fiscal challenges, the impact could be more pronounced. The island nation remains particularly vulnerable due to its limited foreign exchange buffers and high dependency on external earnings.
A sustained downturn in export revenues, prompted by reduced global demand or higher tariffs, could place added pressure on the country’s external financing and debt servicing capacities.
Fitch also flagged the risk of central banks being forced to step in to stabilise local currencies in the face of volatile capital flows and investor sentiment. Interventions of this nature, whilst necessary in the short term, could lead to a depletion of foreign exchange reserves—posing further challenges for nations with already stretched balance sheets.
The credit agency underscored that the trajectory of regional sovereign ratings will largely depend on how governments respond to the evolving global trade environment.
Strategic policy decisions, including measures to diversify exports, strengthen local industries, and shore up reserve positions, will play a crucial role in determining the resilience of each economy.
Countries such as Bangladesh, Sri Lanka, and Vietnam were singled out as being especially exposed due to a combination of modest reserve levels and significant reliance on export income.
Without timely policy adjustments and prudent fiscal management, these nations could face increased pressure on their creditworthiness in the months ahead.
