Sri Lanka rating outlook lifted to ‘stable’ by S&P

Aug 25, 2009 (LBO) - Standard & Poor's has lifted the outlook on Sri Lanka's speculative 'B' sovereign rating to 'stable' from 'negative' on expectations of better policy under an International Monetary Fund program and capital inflows. A sovereign rating measures the creditworthiness of the government. Sri Lanka's high spending governments, that frequently borrows from the central bank (prints money), has a history of de-railing monetary policy and pushing inflation up and the exchange rate down.

Weak Budgets

S&P said the foreign inflows have improved the external payment ability but the improved outlook was balanced "against prevailing large fiscal deficits and the associated debt and interest burdens."

"The ratings could be raised if government policies lead to a sustainable boost in tax revenues and reduced fiscal imbalances, such that debt ratios become more aligned with the median for this rating category," S&P said.

"Conversely, the ratings would come under downward pressure if the public debt trajectory tilts upward."

"The ratings would also come under downward pressure if external liquidity pressures are renewed."

Sri Lanka tax revenues have turned negative in the first four month of the ye