Oct. 15 (Bloomberg) -- Sri Lanka`s credit-rating outlook was raised to positive from stable by Standard & Poor`s Ratings Services, which cited improved government finances after a $2.6 billion loan from the International Monetary Fund.

The ratings company in a statement today affirmed Sri Lanka`s long-term foreign currency debt rating at B, five levels below investment grade.

Sri Lanka is this week selling $500 million of five-year bonds in its first international offering in two years as the island raises funds to rebuild its economy after three decades of civil war. The International Monetary Fund said on Sept. 22 it`s cautiously positive on Sri Lanka`s prospects as it reviews the economy for the release of a second payment.

The ratings on Sri Lanka could be raised on evidence of continued implementation of the IMF program, including progress in expanding revenue generation, S&P said in the statement.

Sri Lanka`s $41 billion economy may grow as much as 6 percent next year after expanding about 3.5 percent in 2009, on construction activity as the end of the civil war spurs rebuilding in areas formerly controlled by the separatist Liberation Tigers of Tamil Eelam, central bank Governor Nivard Cabraal said last week.
Sri Lanka`s borrowing costs are expected to ease further and boost credit demand by private firms amid an improved outlook for economic activity, the central bank said Oct. 13.

The central bank said on Oct. 8 that it had met its key IMF targets as of the end of September.

S&P said the IMF agreement will provide a policy anchor for reducing Sri Lanka`s high public debt burden and the government`s fiscal deficit.

The rating, however, could come under downward pressure in the event of substantial deviation from the IMF program or early termination of it, or if expectations on recovery in growth prospects and revenue improvements disappoint, S&P said.

Sri Lanka aims to cut its budget deficit to 5 percent of gross domestic product and maintain flexibility in the exchange rate to build reserves to cover 3 1/2 months of imports by the end of the IMF lending program.