S&P drops Sri Lanka outlook to negative on rising fiscal and external imbalances

SINGAPORE - Standard & Poor's has revised the outlook on its 'B+' long-term sovereign credit ratings on Sri Lanka to negative from stable, but has affirmed its long-term rating and 'B' short-term credit rating while leaving its transfer and convertibility risk assessment unchanged at 'B+'.

S&P says the negative outlook reflects rising pressure on Sri Lanka's external liquidity resulting from a weaker trade balance and remittances, and short-term capital outflows that have eroded its reserve buffers.

“The outlook also reflects the country's weakened public finances,” S&P says. “We expect sizable and rising projected fiscal deficits to push borrowings higher in 2016-2019.

“In our view, the authorities face significant challenges in effectively addressing the rising imbalance due to institutional constraints and a fragmented political landscape.”

The rating constraints on Sri Lanka are the country's weak external liquidity and a high general Government net debt burden (at 72% of GDP in 2015). “Sri Lanka's general government dedicates a higher share of its revenues to interest payments, and it is among the highest in the world (39% in 2015).

“With GDP per capita at US$4,000 (2016), Sri Lanka's level of prosperity is low.” www.standardandpoors.com (ATI).