Sri Lanka risks credit downgrade from US fallout: S&P

Jan 28, 2008 (LBO) – Sri Lanka is at risk of a credit downgrade from a recession in the United States, especially if domestic policies become more expansionary, the ratings agency Standard and Poor’s (S&P) said. Sri Lanka has a B+ rating with a ‘stable’ outlook.

“Sri Lanka would face the global slowdown from a relatively weak position, with large current account deficits…and an increasing foreign currency debt service burden as its borrowing mix changes to include more commercial external debt,” S&P said in a report on 22 Asia Pacific countries released Monday.

“The outlook on the ratings would be revised to negative on signs of expansion of the current account deficit and fall in reserves.”

The credit fundamentals of a majority of rated Asia Pacific countries are expected to be unchanged by a US recession.

Potential Risks

But Mongolia, Philippines and Thailand faced the risk of a lowered outlook, Pakistan faced a credit downgrade, while Sri Lanka potentially faced an outlook and rating downgrade.

A decline in exports to the U.S., which accounts for 30 percent of Sri Lanka’s total exports, could first reduce foreign currency earnings.

“Under a scenario of a more s