Sri Lanka sovereign bond rated ‘B+’ by Fitch

Oct 14, 2009 (LBO) - An upcoming US dollar denominated sovereign bond issue by Sri Lanka which is due to mature in 2015 has been rated 'B+', in line with the country's long term foreign currency rating, Fitch Ratings said.

"A more robust revenue performance would provide greater fiscal flexibility in addressing post-war spending needs, and should eventually allow for a reduction in government debt/GDP ratios, which are relatively high versus, similarly rated sovereigns."

On October 09, Fitch lifted the outlook on Sri Lanka's sovereign rating to 'stable' from 'negative' following a deal with the International Monetary Fund which raised confidence in the country.

"In the agency's view, there is a real opportunity for economic renewal as part of the post-war transformation of Sri Lanka," Fitch Ratings said in a statement.

"A more settled political and security environment should allow policymakers to focus more on economic issues, including construction and development in areas directly affected by the war - a process that has already begun."

"In addition, the labour force will effectively expand to include these same areas, and costs such as transport and insurance should decline."

Sri Lanka is expected to float a 500 million US dollar bond in October. JP Morgan, HSBC, Royal Bank of Scotland and state-run Bank of Ceylon are selling the bond.

Fitch said tourism receipts have already started to increase, and private investment inflows are supplementing government borrowings.

The IMF program expected the budget deficit to fall to 7.0 percent in 2009 and by a further one percent each in 2010 and 2011.

"Fitch considers these targets to be ambitious, but they are of less importance to the sovereign ratings than the emergence of a sustainable medium-term fiscal framework with a credible strategy for raising government revenue," the rating agency said.

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