Negative Outlook

Feb 15, 2008 (LBO) – Sri Lanka’s rating outlook has been lowered to ‘negative’ by Standard and Poor’s (S&P) who warned that the underlying B+ rating rating could also be downgraded if budgets worsened. The rating agency said short term foreign borrowing was rising and an “apparent” fall in national debt was largely coming from an inflating economy.

“The negative outlook reflects concerns about the weakening fiscal consolidation effort and the unfavorable trends evident in the country’s debt profile,” S & P said Friday.

“The rising share of external debt, estimated at about 49 percent of the total, and, within that, the proportion of more expensive and shorter maturity commercial funds, is gradually eroding what has so far been a relatively favorable debt profile.”

“Moreover, the apparent modest improvement in the debt ratio is due largely to a monetary policy stance, whereby negative real interest rates allow the financing of large fiscal deficits without a significant corresponding rise in public debt as a share of GDP.”

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S&P confirmed Sri Lanka’s underlying ‘B+’ foreign currency and ‘BB-‘ local currency ratings.

The rating agency said the outlook could be l