Sri Lanka rating outlook cut to negative by S&P

May 21, 2009(LBO) – Standard & Poor’s (S&P) has lowered the outlook of Sri Lanka’s ‘B’ sovereign rating to negative from stable, on weak budgets, fallen foreign reserves and uncertainty over an International Monetary Fund loan. “The negative outlook reflects our opinion that underlying pressures on Sri Lanka’s external liquidity position have intensified, while the timing and implementation of a potentially stabilizing IMF loan agreement is uncertain,” S & P credit analyst Agost Benard said in a statement.

The rating agency confirmed the island’s ‘B’ long-term foreign currency rating, its ‘B+’ local currency rating and ‘B’ short-term rating.

The rating agency said information on foreign exchange reserves showed a 26.8 percent fall in gross official reserves since the beginning of the year, even as the trade deficit narrowed.

S & P said a further fall in external liquidity or delays in getting an IMF loan would trigger a rating downgrade.

If an IMF loan is given and Sri Lanka reaches the program targets, the rating would remain steady.

“Standard & Poor’s believes the military defeat of the separatist LTTE will not alleviate near-term pressure on external liquidity, nor is it likely to reverse the countr