Sri Lanka Outlook Cut to Negative by S&P After Tax Cuts
The Sri Lankan flag flies in front of the Bank of Ceylon, left, and the World Trade Towers in Colombo, Sri Lanka. (Photographer: Prashanth Vishwanathan/Bloomberg)

Sri Lanka Outlook Cut to Negative by S&P After Tax Cuts

(Bloomberg) -- S&P Global Ratings cut Sri Lanka’s ratings-outlook to negative, saying new tax cuts undermine the country’s fiscal and debt sustainability.

The company, which lowered the grading from stable, affirmed the island nation’s B ratings, according to a statement Tuesday. That’s five steps below investment grade.

Read: Sri Lanka Tax Cuts to Help Spur Economy, Revenue

“The negative outlook reflects our view that Sri Lanka’s fiscal trajectory over the next two to three years could deviate from a fiscal consolidation path,” S&P said. “The sizable deficits will add to Sri Lanka’s already-large debt stock at a faster pace.”

S&P follows a similar downgrade by Fitch Ratings last month, citing identical concerns over debt sustainability. The interim cabinet of Sri Lanka’s new President Gotabaya Rajapaksa in November approved cutting value-addded tax to 8% from 15% and also removed other levies such as nation building tax, capital gains tax on share transactions and withholding-tax on interest.

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