Sri Lanka sovereign credit cut to B+ on bad budgets, foreign borrowing, war

Chief Regulatory Officer at CSE Renuke Wijayawardhane presenting the listing certificate to Executive Chairperson at Renuka Hotels Shibani Thambiayah

April 03, 2008 (LBO) – Fitch Ratings has downgraded Sri Lanka’s sovereign rating by one notch to ‘B+’ saying budgets were weak, inflation was high and the country was borrowing heavily from foreign lenders at commercial rates. The rating agency said the government’s “overriding priority” was war rather than fixing the economy.

“The ratings downgrade of Sri Lanka reflects the increased vulnerability of sovereign creditworthiness to adverse shocks associated with rising inflation, persistently large fiscal deficits and worsened terms of trade due to soaring oil prices in the context of greater government recourse to commercial and market-based financing,” James McCormack, Head of Asia sovereign ratings said.

Outlook

The outlook on the new downgraded rating was stable. Fitch also downgraded the country rating ceiling by one notch to ‘B+’, but kept the short term rating at ‘B’.

Earlier Standard & Poor’s, which had always rated Sri Lanka at ‘B+’, downgraded its rating outlook to negative, calling for better budgets.

Fitch said Sri Lanka had an “impeccable debt service record,” as it had never defaulted on foreign borrowings. The country also had a good a business environment and its total foreign d