May 7, 2010

Greece crisis unlikely to dent investor confidence in India:S&P

NEW DELHI: Asian nations like India, which have high debts but borrow mainly from the domestic market, are unlikely to witness changes in investor sentiment because of the debt crisis in European countries like Greece, global rating agency Standard & Poor's said on Wednesday.

Last month, S&P downgraded the sovereign credit ratings of Eurozone nations like Greece, Spain and Portugal because of heavy borrowings by their governments, leading to erosion in investor confidence across the world.

"Among Asian sovereigns with relatively high debt burden, Japan, India, and Taiwan borrow mostly domestically and are unlikely to experience the same volatility in investor sentiment as those borrowing externally," S&P said in a global statement.

"The main channel of contagion (impact of the debt crisis) is likely to be through higher funding costs...We don't expect the same degree of deterioration in funding conditions for Asian sovereigns." S&P, however, cautioned that if financial turmoil persists in Europe, then Asian governments that borrow internationally could pay more on their commercial external debt.

Besides, it said, if the current situation leads to a wider economic slowdown in Europe, Asian exports and inbound foreign direct investment could be hurt.

"But many Asian countries have healthy government finances and they are likely to be able to mitigate an economic slowdown through further stimulus programs in the short term," S&P said.

The ratings agency said although it doesn't see any immediate impact on Asia sovereign ratings from the unfolding events in Europe, it is "monitoring the potential medium-term effects of prolonged investor risk-aversion, slower global economic growth, and the possible negative impact on the European banking sector".

As for countries like Sri Lanka, Pakistan, and Mongolia which have significant external borrowings, S&P said their IMF programmes and other loans partly shield them from the volatility of market interest rates.

5 May 2010, 1801 hrs IST,PTI


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