Sri Lanka outlook on ‘B’ sovereign rating lifted to ‘positive’: S&P

Oct 15, 2009 (LBO) – Standard & Poor’s has lifted the outlook on Sri Lanka’s ‘B’ sovereign rating to ‘positive’ from ‘stable’ expecting that a program with the International Monetary Fund would be completed, the rating agency said.

“The swift recovery in Sri Lanka’s foreign currency reserves is propelled by both fundamental and market factors,” the agency said.

“It is underpinned by investor recognition that the civil war has ended decisively, and that the IMF program is now in place, with a reasonable degree of likelihood that it will be completed.”

Aside from cross-border investment in the government bond market, reserves are also improving on account of rising remittances and rebound in tourism receipts, combined with a significantly narrowed trade deficit.

Foreign direct investment flows are expected to add to these inflows with some lag.

But the ratings on Sri Lanka remain constrained by a high public debt burden and underlying perennially large fiscal deficits, S&P said.

Fiscal shortfalls averaged 7.8 percent of gross domestic product over the past decade, and net general government debt of 80.3 percent of GDP (2008) imposed a high debt service burden with an estimated 33 percent of revenues