Crisis-hit Sri Lanka slams latest credit rating downgrade

·2-min read
Sri Lanka is struggling with a major economic crisis (AFP/ISHARA S. KODIKARA) (ISHARA S. KODIKARA)

Sri Lanka accused international rating agencies of undermining efforts to rebuild its cash reserves on Thursday after S&P warned the island's stricken economy risked a sovereign debt default.

Supermarkets are rationing food and power utilities have imposed rolling blackouts in a slow-burning crisis sparked by the Covid-19 pandemic's impact on tourism and a drop in foreign remittances.

Dwindling foreign exchange reserves have left the country unable to pay for essential imports, and S&P Global's Wednesday downgrade reflected questions over whether the government could service its $35 billion foreign debt.

The Central Bank said it was "perturbed" by Wednesday's decision and reiterated pledges to honour all debts, including $1.5 billion of sovereign bonds maturing this year.

S&P was the third of the "big three" international ratings agencies to downgrade Sri Lanka since October, following Moody's and Fitch.

"These repeated rating actions, which have undermined and delayed the efforts of authorities' to augment foreign exchange inflows, have negatively affected investor confidence, potential investment inflows and the gradual build-up of official reserves of the country," the Sri Lankan central bank said in a statement.

Sri Lanka's foreign reserves were at $3 billion at the end of December, it said, adding that it expected new inflows to be able to repay nearly $7 billion this year.

Authorities this week ruled out an IMF bailout and sought more loans, including from China, to address the worsening economic crisis.

Beijing is already Sri Lanka's biggest bilateral lender, accounting for at least 10 percent of its external debt, a figure that does not include Chinese loans to state enterprises.

Sri Lanka has borrowed heavily from China for infrastructure in the past, some of which ended up as white elephants.

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