Upward Revision of Sovereign Ratings on Sri Lanka Expected with Favourable Recommendations from Three Major Rating Agencies

22nd May 2010, www.sundaytimes.lk

Sri Lanka expects an upward revision in sovereign ratings with favourable recommendations from officials from three major rating agencies who are expected to visit the island before the end of this month to review the current country rating.

They will hold meetings with Central Bank (CB) officials, politicians, financial experts, diplomats, foreign lending agencies, etc and report their findings to the rating committee, a senior CB official said.
CB Deputy Governor Dharma Dheerasinghe, who is also the head of the country’s high level Sovereign Rating Committee, told the Business Times that teams of analysts from Standard & Poor (S&P), Fitch and Moody would be visiting the island separately to prepare individual reports to review the ratings which will be forwarded to their top level committees to make the final decision.“The committee meetings will be held in London and New York in July and we are also visiting them to present our case,” he said.

The committee made up of top CB, Finance Ministry and private sector representatives had been appointed to develop a strategy to push Sri Lanka's sovereign rating to investment grade. It is charged with devising a strategy of taking Sri Lanka’s current speculative B+ (Fitch) and B (S&P) rating to an investment grade 'BBB-' or higher over the next four years. Dr. Dheerasinghe noted that "S&P may raise the ratings on Sri Lanka on evidence of more comprehensive fiscal or structural economic reforms”.

At the moment the country’s rating is B+ and “we hope that it will be upgraded by these committees based on the reports of these analysts,” he said adding that they expect an upgrade in the sovereign rating to minimum grade of BBB –or higher.

However an economic expert who wished to be anonymous told the Business Times that S&P may lower the rating if Sri Lanka deviates substantially from the IMF program’s framework, or if expectations on the recovery in growth prospects and revenue improvements disappoint."With inflation pressures mounting in Asia, Sri Lanka is ranked among countries that have lower risks of social unrest because of popular governments, higher growth and lower unemployment mitigating such risks caused by rising prices,” he revealed.

Last year Sri Lanka received a B1 sovereign rating from Moody’s with a stable outlook and officials are confident there would be an upgrade given the government’s improved fiscal performance for 2010, with the deficit reaching 7.9% of GDP, slightly lower than the 8 % target. S&P had given Sri Lanka a long term foreign currency rating of B+ and a long term local currency rating of BB-, both upward revisions from 2009. Fitch has affirmed Sri Lanka’s long term local and foreign currency issuer default rate at B+, revising the outlook from stable to positive.

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