July 18, 2011 (LBO) – Fitch Ratings has upgraded Sri Lanka’s long-term foreign and local sovereign ratings to ‘BB-‘ from ‘B+’ with stable outlooks for both. “In contrast, continued double-digit inflation or deterioration in political stability would put downward pressure on Sri Lanka’s ratings.”
Fitch said Sri Lanka has also made some “important headway” in consolidating its fiscal deficit, which is one of the sovereign’s key rating weaknesses, particularly when compared with ‘BB’ rating category peers.
The budget deficit was brought down to 08 percent of GDP in 2010, from 9.9 percent in 2009.
Moreover, Fitch said, many recommendations by the Presidential Commission on Taxation, which was formed in mid-2009 to review the country’s tax system, were implemented in the 2011 budget.
“This should enable the authorities to achieve, or at least come close to, the budget deficit targets of 6.8 percent of GDP for 2011 and 5.2 percent for 2012.
“If Sri Lanka is able to continue consolidating the fiscal position, its public debt dynamics should be placed on a more sustainable path.”
Fitch noted that Sri Lanka’s public debt-to-GDP ratio sto