Business Times

Rating agency raises Sri Lanka’s international credit-worthiness

SINGAPORE (Standard & Poor's) – Improving balance-of-payments and expectation that the Sri Lankan government's planned revenue reforms will improve public finances so that fiscal deficits and public debt will decline led Standard & Poor's Ratings Services to this week raise its credit rating assessment of the country.

But the rating agency noted that it may lower the rating in the event of substantial deviation from the IMF programme, or if expectations on recovery in Sri Lanka's growth prospects and revenue improvements disappoint.

The rating agency raised its long-term foreign currency sovereign credit rating on Sri Lanka to 'B+' from 'B', and the long-term local currency rating to 'BB-' from 'B+'. At the same time, Standard & Poor's affirmed the 'B' short-term rating on the sovereign. The outlook on the ratings is stable.

In tandem, Standard & Poor's raised all the issue ratings on Sri Lanka's senior unsecured debt accordingly. Standard & Poor's affirmed its transfer and convertibility assessment of 'B+', and its recovery rating of '4' on Sri Lanka's senior unsecured foreign currency debt, which signals the expectation of an average recovery of 30%-50% in the event of a distressed debt exchange or payment default.

Standard & Poor's credit analyst Agost Benard said the positive factors (explained earlier) are balanced against ongoing risk posed by excessive public and external leverage, and the risk of a rebound in inflation.

“The stable rating outlook reflects our expectation of swift progress in addressing structural fiscal weaknesses mostly on the revenue side and the strong growth prospects. "We may raise the ratings on Sri Lanka on evidence of more comprehensive fiscal or structural economic reforms resulting in faster-than-expected reduction of vulnerabilities posed by the high debt and interest burdens, and still-narrow economic profile," Mr. Benard said.

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