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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Moody's Gives Sri Lanka B1 Sovereign Rating with a Stable Outlook

22nd September 2010, www.lankabusinessonline.com

Moody's Investors Service said it had given a 'B1' sovereign rating for Sri Lanka with a 'stable' outlook on the end of a war, low inflation and efforts to contain budget deficit, despite having high levels of debt.

"The stable outlook also considers Sri Lanka's small size, partial dollarization, and relatively modest gross domestic savings," Aninda Mitra, Moody's lead sovereign analyst for sri Lanka said in a statement.

"We therefore place more forward-looking credit emphasis on an improvement in fiscal management, which is an area where reforms are planned, but a track record is awaited."

He said the rating agency expected the "re-integration of the northern and eastern regions into Sri Lanka's economy will sustain a higher growth rate with single-digit inflation without destabilizing the external current account position."

In second quarter of 2010 Sri Lanka's economy grew by 8.5 percent, according to the country's statistics office.

"The outlook also reflects considerable scope for fiscal reforms and high likelihood of foreign investment inflows against lingering risks posed by a large government debt overhang and remaining, though, diminishing, external financing risks," Mitra said.

The end of Sri Lanka's civil conflict and a structural improvement in its economic prospects were important considerations for the ratings decision, Moody's said.

The rating agency said monetary management was "reasonably strong" relationships with official creditors and bilateral partners were strong setting the stage for a sustained rebound in the economy.

The agency had noted "moderate" rankings for rule of law and government effectiveness by the World Bank.

Fitch Ratings lifted the outlook for Sri Lanka 'B+' speculative rating to 'positive' from stable Tuesday and Standard & Poors' upgraded the underlying rating to 'B+' earlier. Sri Lanka is now in the market for a billion US dollar sovereign bond.

Government officials are taking part in an investor meeting in New York this week.

Moody's said government financial strength was low, with a large debt and debt service largely due to a war, but investor interest was improving. Sri Lanka's national debt is about 80 percent of the economy.

"There are also proposed fiscal reforms which are expected to lower future budget deficits," Moody's said.

"Moreover, the country's improving growth prospects and a downshift in local interest rates will also support the government's debt dynamics."

Ratings could be upgraded if budgets improve and inflation is low and less volatile, foreign reserves and foreign direct investment improves, Moody's said.

But ratings could be downgraded if there is no progress in improving budgets, there is loss of inflation control and foreign currency liquidity worsens, or recent political instability worsens local or foreign investor confidence.

Related Info:

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

Fitch Affirms Sri Lanka's LTIDR B+. Revised Outlook to Positive from Stable