Sri Lanka 'B+/B' ratings affirmed; Outlook remains negative

March 9, 2017

COLOMBO - The Sri Lankan Government's reform efforts and the IMF lending programme have led to nascent improvements in the country's fiscal profile, says ratings agency Standard and Poor’s, which has affirmed its 'B+/B' sovereign credit ratings on Sri Lanka.

The outlook remains negative, however, S&P says, given Sri Lanka's weak external profile, in particular its low net reserve levels, and the vulnerability of public finances to any exchange rate shocks.

“The negative outlook indicates that we could lower our rating on Sri Lanka in the next 12 months if (1) we see signs of a reversal in reform momentum, (2) currency pressure leads to substantial increases in public debt, (3) reserve levels decline further, or (4) contingent liabilities from State-owned enterprises worsen the general government's financial position,” the report says.

“We may revise the outlook back to stable if Sri Lanka's external and fiscal indicators continue to improve, or if we conclude that the nascent strengthening of Sri Lanka's institutions and governance practices is on a more sustainable footing.

“Sri Lanka's growth outlook continues to be underpinned by Government investment (including rebuilding the war-torn northern districts), rising tourist arrivals, and moderate inflation, which we expect to remain in single digits.

“We expect Sri Lanka's growth prospects to remain favourable. We believe the country will most likely maintain growth in real per capita GDP of 4.5% per year over 2017-2020 (equivalent to 5.2% real GDP growth). Stronger growth, in our view, would require improved institutional settings and a pick-up in export markets.  www.standardandpoor' (ATI).