Fitch affirms Sri Lanka at CCC amid debt service challenges

Hong Kong, June 16 (ANI): Fitch Ratings has reaffirmed the long-term default rating of Sri Lankan foreign currency issuers at the CCC.

According to him, the island nation’s CCC rating reflects a challenging burden on repaying government foreign debt in foreign currency in the medium term, low foreign exchange reserves and growing government debt, which poses risks to sustainability.

In recent months, external liquidity pressures have eased slightly following bilateral loan repayments and anticipation of the forthcoming allocation of special drawing rights (SDRs) to the IMF.

However, Fitch said, Sri Lanka’s medium-term debt service challenges are significant and pose a risk to the country’s debt repayment capacity.

A total of about $ 29 billion in foreign currency debt is due between 2026 and foreign exchange reserves of $ 4.5 billion at the end of April.

Fitch estimates that Sri Lanka’s foreign exchange reserves will remain at about $ 4.5 billion by the end of 2021, before falling to $ 3.9 billion by the end of 2022.

The current account deficit is likely to increase to 2.8% in 2021 and narrow to 2.1% of GDP in 2022. Forecasts suggest that remittances will remain stable in 2021-22 and tourism is likely to will recover only from 2022.

Sri Lanka’s economy shrank by 3.6% in 2020 as a result of the Covid-19 pandemic. Fitch forecasts growth of 3.8% in 2021, compared to an earlier forecast of 4.9%, in light of the recent jump in virus cases. (ANI)