Sept 14, 2010 (LBO) - Standard & Poor's has 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+' with a stable outlook, a statement said.
At the same time, Standard & Poor's confirmed the 'B' short-term rating on the sovereign.
S&P's also said it raised all the issue ratings on Sri Lanka's senior unsecured debt accordingly.
Standard & Poor's confirmed its transfer and convertibility assessment of 'B+', and its recovery rating of '4' on Sri Lanka's senior unsecured foreign currency debt.
This signals the expectation of an average recovery of 30-50 percent in the event of a distressed debt exchange or payment default, the rating agency said.
"The rating upgrade takes into account the continued strengthening of Sri Lanka's balance-of-payments position," said Standard & Poor's credit analyst Agost Benard.
"(It also) 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."
These positive factors are balanced against ongoing risk posed by excessive public and external leverage, and the risk of a rebound in inflation, the rating agency warned.
"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 programme, or if expectations on recovery in Sri Lanka's growth prospects and revenue improvements disappoint, he added.
source - www.lbo.lk
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