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Fitch warns Sri Lanka of ‘real possibility’ of default 

20 Oct 2021

 
  • Says can service debt till mid-2022
  • Highlights that current rating indicates substantial credit risk 
  • Asks to improve external and public finances
  Fitch Ratings said that Sri Lanka still needs enduring improvements in both external and public finances, since public finances for Sri Lanka remains a key credit weakness. There is “a real possibility” that Sri Lanka is heading for Default, it said.   This comment on Sri Lanka was made in the “What Investors Want to Know: Emerging-Market Sovereigns – 4Q21” report by Fitch Ratings. Fitch Ratings Director – Sovereigns Sagarika Chandra said: “Sri Lanka’s public and external finances remain fragile, as reflected in our ‘CCC’ rating in place since November 2020 and affirmed in June 2021. A rating at this level indicates substantial credit risk, with default ‘a real possibility’.”  Further explaining the matter, she said: “On our baseline, we believe the authorities can remain current on their obligations through at least mid-2022, with resources from project financing and bilateral and multilateral inflows, and likely rollover of Sri Lanka Development Bonds.” She observed that through the rest of 2021, the majority of foreign-currency debt repayments consist of project and syndicated loans. Sovereign bond repayments of $ 500 million and $ 1 billion come due in January and July 2022, respectively. The authorities continue to rule out financing from the International Monetary Fund (IMF). Fitch Ratings projects that accordingly, foreign-exchange reserves will decline to $ 2.5 billion by 2023.  Fitch also forecasted the gross general government debt-to-GDP ratio to keep increasing under our baseline, reaching 113% by 2023 from about 101% at end-2020.  The fiscal deficit is also expected to widen, to 12.1% of GDP by 2023 from 11.1% of GDP in 2020.


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