Fitch Confirms Sri Lanka to CCC Amid Debt Service Challenges
Fitch Ratings has confirmed the long-term default rating of Sri Lanka’s foreign currency issuers to CCC. He said the island nation’s CCC rating reflects a medium-term sovereign external debt repayment burden in foreign currencies, low foreign exchange reserves and growing public debt that poses risks to sustainability.
External pressures on liquidity have eased somewhat in recent months following bilateral loan disbursements and the wait for an upcoming IMF Special Drawing Rights (SDR) allocation. Nonetheless, Fitch said, Sri Lanka’s medium-term debt servicing challenges are significant and pose risks to sovereign debt repayment capacity.
A total of approximately US $ 29 billion in foreign currency debt securities is due by 2026 on foreign exchange reserves of US $ 4.5 billion at the end of April. Fitch predicted Sri Lanka’s foreign exchange reserves would remain at around $ 4.5 billion by the end of 2021 before falling back to $ 3.9 billion by the end of 2022.
The current account deficit is expected to widen to 2.8% in 2021 and decline to 2.1% of GDP in 2022. Forecasts assume that remittances will remain resilient in 2021-2022 and that tourism is unlikely to recover. only from 2022. Sri Lanka’s economy contracted 3.6% in 2020 due to the Covid-19 pandemic. Fitch predicted growth of 3.8% in 2021, down from an earlier forecast of 4.9%, in light of a recent increase in cases of the virus. (ANI)
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