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S & P ups Sri Lanka outlook to stable

Positive fiscal developments the key:

UK: Standard & Poor’s revised its Sri Lanka ratings outlook to stable from negative on Wednesday, citing positive fiscal developments, which analysts said would help the island market a looming US$ 500 million sovereign bond.

“The outlook revision to stable takes into account positive fiscal developments, including improvements on both the revenue and expenditure sides,” the ratings agency said in a statement.

S&P also affirmed the country’s B+ long-term foreign currency and BB- local currency sovereign credit ratings and its B short-term foreign and local currency sovereign credit ratings.

The stable outlook takes into account the limited impact on the economy from renewed fighting between the Government Forces and the LTTE, S&P said.

“Sri Lanka’s economy has demonstrated much resilience to the conflict that has been ongoing for the past two and a half decades,” said S&P credit analyst Agost Benard.

“However, depending on how it unfolds, it could yet become the source of downward pressure on the ratings.”

The ratings could also come under downward pressure, or the outlook could return to negative, if there were signs of fiscal slippage, where, either through expenditure pressures or lower revenues, deficit reduction grinds to a halt, S&P said.

The announcement comes as Sri Lanka’s Central Bank prepares a September roadshow to market its first ever sovereign bond issue, worth $500 million.

The Central Bank aims to complete the issue, likely with a 10-year maturity and aimed at helping fund infrastructure projects, by mid-October. “Certainly I think it will (lift) confidence and help with the marketing of the bond issue,” said Dushyanth Wijayasinghe, head of research at Asia Securities in Colombo.

He said the fiscal developments S&P referred to must be a Government reduction in capital spending to cut back on recurrent expenditure and higher revenues thanks to high inflation.

Sri Lanka’s Central Bank is forecasting the economy will expand by 7.5 per cent this year, but growth slowed in the first quarter to its weakest pace in two years amid high interest rates and renewed conflict.

The economy grew 7.4 per cent in 2006, its highest growth rate since 1978, with telecoms and industry leading the way.

REUTERS

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