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Fitch Affirms Sri Lanka's Sovereign Ratings

5/4/2012 5:30 AM ET

Fitch Ratings on Friday affirmed Sri Lanka's sovereign ratings with Stable outlook, citing appropriate measures taken by the authorities to correct its balance of payment.

The foreign- and local-currency IDRs were confirmed at 'BB-'. Successful implementation as well as persistent application of policies intended to improve external liquidity, including further monetary tightening if required, would support the ratings, it said.

"Given the weakened state of Sri Lanka's external finances and a heavy external debt refinancing schedule through to 2013, the authorities' ability to persist with policies that address existing macroeconomic imbalances and improving external liquidity is crucial," said Philip McNicholas, Director in Fitch's Asia-Pacific Sovereign Ratings group.

The current account deficit widened to 7.8 percent of GDP in 2011. Moreover, deterioration in external environment and limited currency flexibility added pressure on the balance of payment, leading to a sharp depletion of foreign exchange reserves.

Fitch believes the rapid depletion of FX reserves in the second half of 2011 has heightened the vulnerability of the Sri Lanka's sovereign credit profile to a spike in global risk aversion.

by RTT Staff Writer

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