S&P 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+', it said in a statement today. At the same time, S&P affirmed the 'B' on the sovereign.
"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," the statement said quoting Standard & Poor's credit analyst Agost Benard.
In justifying the rating the S&P 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 ratings are still few levels below the international investment grade.
According to the international rating service the stable rating outlook has been given expecting rapid 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," the statement quoted Benard.
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 has added.
Standard & Poor's is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research and data.
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