S&P upgrades India''s foreign currency rating

Our Banking Bureau
25 August 2004

The outlook on the 'BB+' long-term local currency rating was revised to stable from negative. At the same time, all the ratings on India (foreign currency BB / Positive / B, local currency BB+ / Stable / B) were affirmed.

"The outlook revisions reflect India's improving external liquidity and better prospects for the government's debt burden to stabilise," said S&P's credit analyst Ping Chew, director in the Sovereign & International Public Finance Ratings Group. "In addition, India's robust foreign exchange reserves, which exceed 2,000 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 'BB' long-term foreign currency rating to positive from stable, while the outlook on the 'BB+' long-term local currency rating was revised to stable from negative.

The sovereign ratings on India are supported by the country's good economic prospects, with the gross domestic product (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 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.