* Fitch downgrading is unwarranted, Sri Lanka says
Friday, February 27, 2009, 18:33 GMT, ColomboPage News Desk, Sri Lanka.

Feb 27, Colombo: Sri Lanka Central Bank today said the downgrading of Sri Lanka's outlook to negative from stable while affirming the country's B-plus rating, four notches below investment grade by Fitch Ratings is unwarranted.

Issuing a statement in response to the change in ratings by Fitch Agency, the Central Bank said the decision was based on the rating agency’s pessimistic view on the various measures currently being implemented by the Sri Lankan authorities to raise external financing.

The Central Bank attributed the decline in reserves to the global financial crisis which resulted in a global liquidity crisis leading to the drying up credit lines. Sri Lanka has been using the reserves to keep the rupee from devaluing further.

Sri Lankan government's increased reliance on foreign-currency borrowing in recent years, its fiscal deficit and the stresses in the country's balance of payments were main concerns to the rating agency.

Fitch said in a statement that "without a sharp contraction in domestic demand to curtail imports, or a significant depreciation of the exchange rate to otherwise correct the trade imbalance, Sri Lanka may not have access to sufficient international funding to cover the current account shortfall and its international debt repayments, resulting in ongoing pressures on official reserves."

The Central Bank said while the recessionary conditions in advanced countries may affect the growth rate of Sri Lanka it is unlikely to bring growth down to 3 percent as Fitch Ratings projected.

The Bank was optimistic that liberation of North and East last year would spur growth as rehabilitation and reconstruction will start soon in the liberated areas bringing in more opportunities for growth.