Fitch downgrades Sri Lanka’s debt rating amid political crisis

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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.”

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