Fitch has downgraded Sri Lanka’s long-term debt rating in the latest blow to the cash-strapped country as it grapples with ongoing political turmoil.
The ratings agency on Tuesday said it had downgraded Sri Lanka’s long-term foreign-currency issuer default rating to B from B+.
The move reflected “heightened external refinancing risks, an uncertain policy outlook, and the risk of a slowdown in fiscal consolidation as a result of an ongoing political crisis” following President Maithripala Sirisena’s sudden replacement of Prime Minister Ranil Wickremesinghe in late October, Fitch said in a statement.
Analysts have warned for several months about Sri Lanka’s weak fiscal position and urgent refinancing needs amid low foreign exchange reserves and high near-term debt obligations – including to China.
While authorities plan to raise cash through bilateral and commercial borrowing and foreign-currency swaps, risks “could arise from a prolonged period of political uncertainty accompanied by an adverse shift in investor sentiment”, Fitch said.
The ratings agency added: “Fitch believes the ongoing political upheaval, which has disrupted the normal functioning of parliament, exacerbates the country’s external financing risks, already challenged by the tightening of global monetary conditions amid a heavy external debt repayment schedule between 2019 and 2022.”