Standard & Poor’s Global Ratings has downgraded Sri Lanka’s long-term sovereign credit rating from ‘CCC+’ to ‘CCC’ on increasing external financing risks.
S&P in a statement said the outlook is negative and there is a rising probability of sovereign default scenarios playing out over the next 12 months in the absence of an unforeseen positive development.
The rating agency has meanwhile affirmed ‘C’ short-term credit rating.
S&P said the country’s external position continues to weaken owing to elevated external obligations and uneven access to financing.
It added, foreign exchange resources will be further pressured over the coming quarters by additional external sovereign debt maturities and current account requirements.
S&P in its statement noted that timely debt service will likely become increasingly difficult over the next 12 months, given Sri Lanka’s vulnerable external profile, sizable fiscal deficits, heavy government indebtedness, and hefty interest payments adding these factors significantly constrain ratings.
It also noted that macroeconomic policies, including the recent introduction of a $1.2 billion relief package, have provided some support to the pandemic-hit economy but they have also weakened the government’s fiscal position and worsened the risks associated with the government’s already-high debt burden.