Downgrade for Sri Lanka's credit outlook

Standard and Poor's on Friday downgraded Sri Lanka's credit outlook to "negative" and warned that the troubled tropical island was depending too much on foreign borrowing.

The ratings agency lowered Sri Lanka from "positive" and said its credit rating was still below investment grade at "B+".

The outlook revision also takes into account adverse changes in the country's debt composition, the risk evaluator said.

"The rising share of external debt, estimated at about 49 percent of the total, and, within that, more expensive and shorter-maturity commercial funds, is gradually eroding what has so far been a relatively favourable debt profile," the agency said.

The warning comes as Sri Lanka is preparing to raise 300 million dollars in debt capital this year after a similar bond for 500 million dollars in 2007 was oversubscribed three times.

The agency also warned against the government's spending programme amid soaring inflation and an escalation of the war with Tamil Tiger rebels.

"The official end of the ceasefire and the (rebels') stepped-up attacks on civilians in response to government military gains make peaceful resolution a more distant prospect," the agency said.

However, Sri Lanka's central bank hit back, accusing the risk evaluator of not taking into account the government's efforts to put together a political solution to end more than three decades of war with the Tamil Tigers.

The bank also said the downgrade was unwarranted and cast doubts over the agency's "objectivity and impartiality."

"Sri Lankan authorities view Standard and Poor's decision as being illogical, ill-advised and without rational basis or foundation," the bank said in its rebuttal.

Source: AFP