Fitch downgrades Sri Lanka as default fears mount
International ratings agency Fitch downgraded cash-strapped Sri Lanka Saturday by one notch to "CC" due to mounting fears of a sovereign default on its $26 billion foreign debt.
The downgrade came a day after Sri
Lanka reported a 1.5 percent contraction in the third quarter of this year as a
foreign exchange crisis wrecked its recovery from the coronavirus pandemic.
Fitch said the downgrade reflected
its view of an "increased probability of a default event in coming
months" as Sri Lanka's foreign reserves slumped to $1.58 billion at the
end of November.
"We believe it will be
difficult for the government to meet its external debt obligations in 2022 and
2023 in the absence of new external financing sources," the agency said in
a statement.
It noted Sri Lanka had to repay two
international sovereign bonds of $500 million in January 2022 and $1.0 billion
in July 2022 with little improvement in capital inflows into the nation of 21
million people.
Foreign-currency debt service
payments, including principal and interest, for next year total $6.9 billion,
or the equivalent of nearly 430 percent of the island's official gross
international reserves as of November 2021.
"Cumulative foreign-currency
debt service, including interest and principal, amounts to about $26 billion
from 2022 through to 2026," Fitch said.
The island's tourism-dependent
economy was hammered by the pandemic and authorities responded to falling
foreign exchange reserves with a broad import ban, triggering shortages
including food, fuel and medicines.
The crisis has spread to affect manufacturing
and services and agriculture has also suffered badly due to a ban on
agrochemical imports.
Sri Lanka's economy had grown 12.3
percent in the second quarter but a third wave of infections that forced a
41-day curfew saw services and industries heavily affected, the statistics
office said on Friday.
Its foreign reserves of $1.58
billion at the end of November compared with $7.5 billion when the government
of Gotabaya Rajapaksa took over two years ago.
Supermarkets have rationed staples such
as milk powder, sugar, lentils, inned fish and rice as commercial banks ran out
of dollars to finance imports.
The central bank has been appealing
for foreign currency, even loose change people may have after returning from
overseas trips, as the government desperately looks for dollars.
The banking regulator has also
warned it will freeze accounts of informal money changers who offer higher
prices for hard currency than official exchange rates. Source: BSS/AFP