Sri Lanka credit outlook upgraded by S&P

August 8, 2007 (LBO) – Standard and Poor's Rating Services (S&P) has upgraded the outlook on Sri Lanka's B+ foreign currency rating from negative to stable on the eve of a maiden sovereign bond issue. S&P said it was upgrading the outlook on account of better revenue collections, the elimination of fuel and electricity subsidies and expectations of a political solution to the conflict being tabled before the end of the year.

"On the expenditure side, the elimination of the oil subsidy, which allowed full pass-through of market prices, and the increases in electricity tariff are set to ease the government's fiscal and external vulnerability and reduce misallocation of resources," S&P said.

The agency said it was affirming the B+ speculative sovereign rating, the 'B+' long-term foreign currency and 'BB-' local currency sovereign credit ratings, 'B' short term foreign and local currency credit ratings.

Better Collections

S&P said revenue collections had improved to 15.3 percent of Gross Domestic Product (GDP) with better tax collections and compliance as well as better macroeconomic coordination.

"These measures foreshadow the continuation of a modest deficit reduction, wh