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December 20, 2021

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Fitch cuts rating for Sri Lanka

International ratings agency Fitch downgraded cash-strapped Sri Lanka on Saturday due to mounting fears of a sovereign default on its US$26 billion foreign debt, but Colombo insisted it will meet its obligations.

The downgrade by one notch from “CCC” to “CC” came a day after Sri Lanka reported a 1.5 percent contraction in the third quarter of this year as a foreign exchange crisis wrecked its recovery from the coronavirus pandemic.

Fitch said the downgrade reflected its view of an “increased probability of a default event in coming months” as Sri Lanka’s foreign reserves slumped to US$1.58 billion at the end of November.

“We believe it will be difficult for the government to meet its external debt obligations in 2022 and 2023 in the absence of new external financing sources,” the agency said in a statement.

However, the Central Bank of Sri Lanka accused Fitch of making a “reckless” downgrade ignoring “positive developments” in the economy.

“It must also be noted that the government has given a clear assurance that Sri Lanka will honour all debt obligations in the period ahead,” the bank said in a statement.

Fitch noted Sri Lanka has to repay two international sovereign bonds of US$500 million in January and US$1.0 billion in July with little improvement in capital inflows into the nation of 21 million people.

It added foreign-currency debt service payments, including principal and interest, total US$6.9 billion for next year, the equivalent of nearly 430 percent of the official gross international reserves as of November.


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