BEIJING, Feb. 27 (Xinhua) -- Dagong Global Credit Rating Co., Ltd., China's leading rating agency, decided on Monday to maintain the local and foreign currency sovereign credit rating of the Democratic Socialist Republic of Sri Lanka at B+ with a stable outlook.
The rating reflects Sri Lanka's stable political environment and rapid economic development, which will help buoy its solvency, the rating agency said.
Dagong predicted the economy will grow 7 percent and 7.5 percent in 2012 and 2013, respectively, driven by its domestic infrastructure construction and international industrial capital inflows.
The country failed to gain a higher credit rating because it maintained a large fiscal deficit and massive government debts, said Dagong, citing a 7-percent government deficit ratio and a 77.5-percent debt ratio in 2011.
Its expanding trade deficit, which negatively contributed to its foreign reserves, also threatened its external solvency, Dagong said.
The ratio of the economy's external loans in its GDP hit 33 percent last year, but its foreign reserves only accounted for 33 percent of its GDP, the rating agency noted.
Furthermore, the economy's rising fiscal deficit and current account deficit will also push up inflation and currency depreciation pressure, which may disrupt sustained growth, the rating agency added.
As the country relies heavily on exports and external financing, Dagong warned of short-term risks in the face of the ongoing global economic slowdown, and suggested focusing on easing government debt pressure.
