Sri Lanka's credit rating cut

[TamilNet, Monday, 15 December 2008, 13:06 GMT]
Sri Lanka’s credit rating was cut to five levels below investment grade by Standard & Poor’s, citing mounting public debt and political and security concerns, Bloomberg reported Monday. The new rating places the country on par with Burkina Faso and Cameroon. The other key ratings agency, Moody’s Investors Service, does not have a rating for Sri Lanka. The announcement comes shortly after the government comfortably won a budget including raising external borrowing by 25%. Sri Lanka’s external debt amounted to $12 billion at the end of 2007, almost 40 percent of gross domestic product, according to the central bank.

Sri Lanka’s long-term foreign currency rating was lowered by one notch to B from B+, S&P said in a statement Monday.

“The ratings on Sri Lanka reflect high government and external indebtedness, weak revenue mobilization, political and security concerns, rising balance of payments pressures and the resultant decrease in foreign reserve cushion,” S&P said.

“We believe these are the principal sources of risk for the Sri Lankan economy, which, in the unfolding environment of slowing economic growth, unfavorable global economic and financial market conditions, increases the stress on Sri Lanka's debt service capacity.”

The Sinhala nationalist government of President Mahinda Rajapakse plans to spend a sixth of its budget for next year on the war against the Tamil Tigers.

Despite difficult living conditions, the war and the President enjoy overwhelming and enduring support amongst the Sinhala majority.

“Although there is the possibility of outright military defeat of the separatists, a potentially different style and lower-intensity conflict will continue to pose a risk to growth prospects and public finances,” S&P said Monday.