Sri Lanka rating outlook cut to negative on forex woes

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COLOMBO, Feb 28 (AFP): Global ratings agency Fitch downgraded Sri Lanka's sovereign credit outlook to negative from stable yesterday as it warned the country could run out of foreign currency reserves.

"At end-2008, Sri Lanka's reserves covered just 1.3 months of current external payments," Fitch said, calling it one of the lowest coverage ratios of any emerging market.

Fitch has Sri Lanka's sovereign credit rating at B-plus, already below investment grade, and the agency said it could be further downgraded if the island's financial position worsens.

McCormack warned Sri Lanka may run out of foreign reserves if its currency is not "significantly depreciated" and the island reduces imports sharply.

Sri Lanka's foreign reserves fell to 1.75 billion dollars at the end of 2008 after peaking at 3.56 billion dollars in July that year, Fitch said, as the island spent money to repay foreign debt and shore up the local rupee.