June 17, 2016 (LBO) – Sri Lanka still needs to refinance close to 3 billion US dollars for the rest of 2016 and remains vulnerable to shifts in investor sentiment, Fitch Ratings said.
Delivering a presentation at a forum, Associate Director of Fitch APAC Sovereigns Sagarika Chandra emphasized that progress on IMF program criteria will be the key rating driver for the sovereign ratings improvement.
“From a rating stand point key drivers of ratings are really progress on the IMF program and certain degree of predictability with policies,” Chandra said.
“The real challenge is meeting the IMF criterion and that is something we are still waiting to see.”
Chandra said higher levels of non-debt creating capital flows and further deterioration in external finances are also factors that affect ratings.
Sri Lanka officially secured a 3-year extended fund facility of 1.5 billion US dollars from the IMF recently which could support investor confidence.
Fitch downgraded Sri Lanka’s Long-Term IDR in February 2016 following deterioration of its external and public finances.
Chandra said Sri Lanka’s weak status in public finances and external finances have led to a negative trend in sovereign ratings.
Fiscal deficit for 2015 came in at close to 7.4 percent, above original target of 4.4 percent.
The ratings agency added that additional contingent liabilities that are already disclosed could possibly spillover onto sovereign’s balance sheet.
Chandra further said high foreign currency debt could hurt debt ratios in case of exchange rate depreciation.
Government debt increased to over 75 percent of GDP by the end of 2015 and reserves declined to around 6.5 billion US dollars.