Mumbai: Global rating agency Standard & Poor's today (Dec 16, 2003) revised the outlook on
India's 'BB' long-term foreign currency rating from negative to stable reflecting the improving external
finances but retained the negative outlook on the country's 'BB+' long-term local currency rating due to
Government's difficulty in addressing its fiscal problems and structural reforms.
"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," S&P's credit analyst Takahira Ogawa, Director in the Asia-Pacific Sovereign Ratings
Group, said in a release in Mumbai.
Both foreign and local currency short-term ratings on the sovereign were affirmed at 'B'.
"The outlook on India's 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," he said adding
that this would also improve prospects for the foreign currency rating.
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, Ogawa added.
"This, in turn, could negatively affect the outlook on the foreign currency ratings," he added.
Foreign exchange reserves should equal about 490 per cent of India's gross external financing gap
(current account deficit plus amortisation and short-term debt) in 2003 compared with 90 per cent or so
in similarly rated countries.
This is a major supporting factor for the sovereign ratings on India apart from its stable and good
economic prospect, which was another factor supporting the sovereign ratings, he added.
Ogawa said India is expected to achieve a 5-6 per cent trend rate of GDP (gross domestic product)
growth in the medium term, which should help cushion the impact of its high fiscal deficit and restrain the
rise in the Government's heavy debt burden.
PTI
