The Hindu Business Line : S&P raises India's foreign currency rating to stable

STANDARD & Poor's Ratings Services (S&P) today revised the outlook on India's long-term foreign currency rating to `stable' from `negative', taking into account the country's rising foreign exchange reserves.

However, the outlook on the country's long-term local currency rating remains negative because of the Government's continuing difficulty in addressing its fiscal problems and structural reforms, the agency said in a release. Both foreign and local currency short-term ratings were affirmed at the existing levels.

"Rapidly increasing external liquidity, sustained by growing foreign exchange reserves (exceeding 700 per cent of short-term debt), and modest debt service payments sparked the revision in the foreign currency outlook," said Mr Takahira Ogawa, Director, Asia-Pacific Sovereign Ratings Group.

In February 2003, Moody's Investors Services had upgraded India's country ceiling for foreign currency debt due to a substantial improvement in the external liquidity position.

According to analysts, the revision in the rating outlook may add to the overall feel-good factor in the economy but no immediate impact is expected in the stock or currency markets.

India's foreign reserves have been steadily rising in the recent past to touch $97.52 billion as on December 6, 2003; this figure is expected to cross the $100-billion mark before the end of the calendar year.

The outlook on the local currency ratings could be revised to stable if the Government manages to reverse its fiscal trajectory by reducing the deficit and accelerating structural reform. "On the other hand, if deficits remain large and debt continues to rise, or if the Government fails to stimulate economic growth through deeper structural reform, the local currency rating could become unsustainable," said Mr Ogawa.

"This, in turn, could negatively affect the outlook on the foreign currency ratings."

According to S&P, India's stable and good economic prospects are another factor supporting the sovereign ratings.

The country is expected to achieve 5-6 six per cent trend rate of GDP growth in the medium term, which should help cushion the impact of the high fiscal deficit and restrain the rise in the Government's heavy debt burden.

"Nevertheless, rising public debt and increasing fiscal inflexibility remain the most pressing issues for the Government," Mr Ogawa said.

The consolidated direct debt of the State and Central Governments is expected to be 84 per cent of GDP in 2002-03, which is high for the rating category.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Reliance urges NTPC Kayamkulam plant relocation to Kakinada

Quarterly results: Adding to corporate burden?

S&P raises India's foreign currency rating to stable

HSBC may have to `pay more' for 14.7 pc in UTI Bank

`Govt to raise FDI cap in pvt banks'

Ads thunder before Indian wonder Down Under