S&P Raises Sri Lanka’s Ratings. B+ for Foreign Currency Debt with a Stable Outlook

15th September 2010, www.dailynews.lk

Standard & Poor’s Ratings Services 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.

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 percent - 50 percent in the event of a distressed debt exchange or payment default.

“The rating upgrade takes into account the continued strengthening of Sri Lanka’s balance-of-payments position, and reflects Standard & Poor’s expectation that the Government’s planned revenue reforms will improve public finances, such that fiscal deficits and public debt will decline again in a sustainable manner,” Standard & Poor’s credit analyst Agost Benard said.

These positive factors 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,” Benard said. Standard & Poor’s may lower the rating in the event of substantial deviation from the IMF program, or if expectations on recovery in Sri Lanka’s growth prospects and revenue improvements disappoint, he added.

Speaking to Daily News Business Central Bank Governor Ajith Nivard Cabral said this rating upgrade has been a predictable reaction to the constantly improving macro economic fundamentals of our country.

“We are pleased that S and P have done this upgrade although it would not have come as a surprise to the many investors and stakeholders. We are quite sure that Sri Lanka’s rating will continue to improve in time to come,” the Governor said.

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