Sri Lanka's Sovereign Rating Upgraded by an Agency

21st November 2010, www.sundaytimes.lk, By Bandula Sirimanna

Sri Lanka's sovereign rating has been upgraded by one notch since the economy is now very robust. This was a result of the Central Bank's efforts to implement a carefully designed, forward looking and effective strategy with the participation and co-operation of all stakeholders, country authorities, private sector business leaders, chambers and rating advisors, during the past few months, a member of the high level Sovereign Rating Committee, told the Business Times.

The committee makes regular reviews of developments of the economy and conveys these improvements to the rating agencies through rating advisors, to push the rating up, he said.

The committee is charged with devising a strategy of taking the Sri Lanka current speculative B+ (Fitch) and B (S&P) rating to an investment grade 'BBB-' or higher over the next four years.

A senior official of the Central Bank said that Capital Intelligence (CI), the international credit rating agency, announced that it has raised Sri Lanka's long-term foreign currency rating to 'B+' from 'B' and its long-term local currency rating to 'BB-'from 'B+'.

At the same time the rating agency has affirmed the sovereign's short-term foreign and local currency ratings of 'B'. The outlook is 'Stable' . The upgrade in the sovereign's ratings reflects the marked improvement in the political and security situation following the end of the civil war, a strong recovery in international reserves to record high levels, and better prospects for fundamental tax reform and fiscal consolidation over the medium term.

The ratings take into account CI's expectation that the government will move forward on promised tax reforms and reduce the large budget deficit and high public debt ratio in line with its medium-term plans, while at the same time taking steps to strengthen export performance and attract foreign direct investments, he said. Sri Lanka's sovereign ratings are foremost constrained by chronic fiscal problems including high indebtedness, weak revenue-generating capacity and a rigid expenditure structure.

Fiscal performance has improved in 2010, however, and the budget deficit should decline to about 8% of GDP from 9.9% in 2009.

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