Sri Lanka sovereign rating weighed down by weak budgets, war, public employment

March 02 (LBO) – Sri Lanka’s weak public finances which leave little room for the country to counter shocks and an ongoing war are weighing heavily on its credit rating, Fitch Ratings said. Sri Lanka has a BB- sovereign rating with the outlook downgraded to negative in April 2006 after the conflict intensified, which is now due for a review.

Though Sri Lanka’s unblemished track record of debt repayments, proven resilience to shocks and a high level of human capital were helping its BB- credit rating, a long-running civil conflict and emerging external financing concerns were undermining it, Paul Rawkins Fitch’s head of sovereign ratings said.

Below Median

“The core of the sovereign rating is on the public finance side,” says Rawkins.

“We are looking at sovereign credit worthiness, not looking at just country risk. The story here is how much worse the public finances are than the BB median.

Though Sri Lanka had higher GDP growth last year, most of the country’s credit fundamentals were far below other countries that have been rated BB.

Its fiscal deficit, one of the worst in Asia stands out like a sore thumb at 8.7 percent compared to a BB average of