Sri Lanka to extend services of sovereign rating agencies

June 26, 2009 (LBO) - Sri Lanka will extend the contracts of Standard and Poor's (S&P) and Fitch Rating, the two agencies that are issuing the country's sovereign rating, the government's information office has said. The cabinet of ministers had empowered the central bank to sign fresh agreements with the two rating agencies for three years beginning September 2008.

The two agencies had repeatedly downgraded Sri Lanka in the recent past as an internal conflict and spendthrift policies hurt the creditworthiness of the country, earning the wrath of the central bank in the process.

On May 21, S & P cut the outlook on Sri Lanka's speculative 'B' sovereign rating to negative from stable, on weak budgets and falling foreign reserves, signaling a possible downgrade of the underlying rating.

The central bank said the move was "outrageous, arbitrary and biased" and the county will "be compelled to review its relationship" with the rating agency.

Fitch has rated Sri Lanka 'B' with a negative outlook.

A sovereign that wishes to tap international capital market has a narrow choice of three globally recognized agencies to choose from, S & P, Fitch and Moody's.