Fitch downgrades Sri Lanka to ‘CCC’, rating based on uncorroborated facts, says Finance Ministry

Nov 27, 2020 (LBO) – Fitch Ratings has downgraded Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CCC’. Fitch typically does not assign Outlooks or apply modifiers to sovereigns with a rating of ‘CCC’ or below.

“The downgrade reflects Sri Lanka’s increasingly challenging external-debt repayment position over the medium term,” Fitch Ratings said.

“In particular, a sharp rise in the sovereign debt to GDP ratio associated with the coronavirus shock and narrowing financing options have heightened debt sustainability risks.”

Sri Lanka’s external-debt obligations amount to USD23.2 billion between 2021 and 2025 or about USD4 billion annually, against FX reserves at end-October of just USD5.9 billion.

In a statement, the Finance Ministry, however, said that they do not accept this downgrade as it fails to recognize the robust policy framework of the new Government for addressing the legacy issues, including the concerns raised by Fitch Ratings, and ensuring ongoing economic recovery and macroeconomic stability of the Country.

“We observe, with disappointment, today’s rating action by Fitch Ratings expressing concerns about Sri Lanka’s external debt repayment capacity over the medium-term, financing options and debt sustainability risks, at a time when the newly appointed Government has just announced its medium-term policy framework in its Budget 2020,” the Finance Ministry said.

“The Government wishes to reiterate that Sri Lanka will engage with all investment and development partners and implement necessary measures to build up reserves through non-debt creating inflows.”

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