S&P cuts Sri Lanka outlook to negative

Standard & Poor's said it revised the Democratic Socialist Republic of Sri Lanka's outlook to negative from stable and affirmed its B+ long-term foreign-currency and BB- local-currency sovereign credit ratings and B short-term foreign- and local-currency sovereign credit ratings.

The outlook revision comes in the wake of a breakdown in talks between the Sri Lankan government and the Liberation Tigers of Tamil Eelam on the implementation of the present cease-fire and the ensuing increase in violence that threatens a return to full-scale hostilities.

S&P said the ratings on Sri Lanka reflect the high level of government debt and weak revenue mobilization, together with political and security concerns that stem from a fractious political environment and the unresolved conflict with Tamil separatists.

These factors are balanced against the economy's robust medium-term growth prospects and the favorable terms of its external debt, which impose minimal stress on external liquidity, the agency said.

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