Global rating agency Standard and Poor’s (S&P) has lowered Sri Lanka’s long-term foreign currency sovereign rating from “CCC” to “CC” to reflect looming default on some affected obligations.
The rating action follows the Central Bank of Sri Lanka’s announcement on the suspension of normal external debt servicing.
It has also lowered long-term local currency sovereign credit rating from “CCC” to “CCC-”.
At the same time, S&P had affirmed the “C” short-term rating with the outlook on ratings negative.
It reflects the high risk to commercial debt repayment in the context of Sri Lanka’s economic, external, and fiscal pressures.
The rating agency warned that it could lower the foreign currency rating to ‘SD’ (Selective Default) upon confirmation that the government has missed a coupon or principal payment on commercial foreign currency debt.
This includes Sri Lanka’s upcoming Monday’s coupon payment on international sovereign bonds, or upon confirmation of debt restructuring terms.
The government earlier this week announced that most categories of external public debts would be suspended, pending formal restructuring under a potential program supported by the International Monetary Fund (IMF).
S&P said it could lower the local currency ratings if there are indications of non-payment or restructuring of rupee-denominated obligations.
The rating agency added, upon completion of any bond restructuring, it will assign new foreign and local currency sovereign credit ratings that reflect Sri Lanka’s post-exchange creditworthiness.
Amid steeply rising external funding pressures, Sri Lanka is also witnessing increasingly widespread social and political protests.