Fitch Ratings has affirmed Sri Lanka’s long-term foreign-currency issuer default rating at CCC.
It said the island nation’s CCC rating reflects a challenging foreign-currency sovereign external debt repayment burden over the medium term, low foreign exchange reserves, and rising government debt that gives rise to sustainability risks.
External liquidity pressures have eased somewhat in recent months following bilateral loan disbursements and the expectation of a forthcoming IMF special drawing rights (SDR) allocation.
Nevertheless, said Fitch, Sri Lanka’s medium-term debt service challenges are substantial and pose risks to the sovereign’s debt repayment capacity.
A total of about USD29 billion in foreign currency debt obligations are due between now and 2026 against foreign exchange reserves of USD4.5 billion as of end-April.
Fitch projected Sri Lanka’s foreign exchange reserves to remain at about USD 4.5 billion by end-2021 before declining to USD3.9 billion by end-2022.
The current account deficit is likely to widen to 2.8 percent in 2021 and narrow to 2.1 percent of GDP in 2022. The forecasts assume remittances will remain resilient in 2021-22 and tourism is likely to recover only from 2022.
Sri Lanka’s economy contracted by 3.6 percent in 2020 as a result of the Covid-19 pandemic. Fitch projected growth of 3.8 percent in 2021, down from an earlier forecast of 4.9 percent, in light of a recent surge in virus cases. (ANI)