Sri Lanka credit could improve on a better budget direction: Moody’s

Nov 03, 2010 (LBO) - A 2011 budget that will broaden the tax base and cut tax holidays will help improve the outlook on Sri Lanka's credit rating, but an contingent liabilities can undermine its credit, Moody's Investors Services has said. Aninda Mitra, senior analyst and vice president of Moody's Investors Services said the rating agency was waiting to assess whether the 2011 budget will indicate a "policy intention to improve fiscal fundamentals".

Moody's rated Sri Lanka at a below-investment-grade 'B1' with a 'stable' outlook ahead of a billion US dollar euro bond issue in September. Fitch and S & P has rated Sri Lanka 'B+' four notches below the lowest 'BBB-' investment grade level.

Fiscal Promise

A commission report which recommended changes to Sri Lanka's tax regime is with the government and there were expectations that tax holidays which had sapped revenues would be phased out and the base broadened.

"If that is something that does indeed improve the credit profile on a stand-alone basis as well as relative to other single 'B' credits then we would certainly consider upward movements in the outlook," Mitra told teleconference for investors on its Sri Lanka rating report.

"For now we are maintaining