The Hindu : Business : S&P upgrades India's currency rating

Online edition of India's National Newspaper
Tuesday, Aug 24, 2004

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S&P upgrades India's currency rating

By Our Special Correspondent

MUMBAI, AUG. 23. Standard & Poor's (S&P) today upgraded its outlook for India's long term foreign currency rating to `positive' from `stable' on the back of improving external liquidity and chances of India's debt burden stabilising.

"The outlook revision reflect India's improving external liquidity and better prospects for the Government's debt burden to stabilise,'' said Ping Chew, Director, Sovereign and International Public Finance Rating Group of S&P.

"In addition, India's robust foreign exchange reserves, which exceed 2000 per cent of short-term debt, mitigate the risk of volatility in external confidence.''

S&P also revised its outlook on the Export-Import Bank of India's long-term foreign currency rating to positive from stable. At the same time, S&P revised the outlook on the long-term local currency rating to `stable' from `negative'.

The sovereign ratings on India are supported by the country's good economic prospects, with GDP growth likely to trend over 6 per cent over the medium term. The service sector is dynamic, while the industrial sector is benefiting from gradual deregulation, trade liberalisation and modest improvements in infrastructure. "Good economic growth could contain the pressure on India's already weak public finances, provided tax reform continues", said Mr. Chew.

India's external debt and debt service burden is expected to fall due to strong export growth and non-debt foreign capital inflows, which should help offset the impact of rising imports given the surge in oil prices. India's total external debt is likely to fall below 100 per cent of current account receipts for the current fiscal year ending March 31, 2005 compared with over 200 per cent in fiscal 1993.

Nevertheless, the sovereign ratings on India remain constrained by high public debt and serious fiscal inflexibility. "The country's fiscal weakness is the worst among rated sovereigns, leaving it particularly vulnerable to economic cycles and any decline in growth rates,'' said Mr. Chew.

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