ZCZC
BCN-18
SRILANKA-ECONOMY-DEBT
Crisis-hit Sri Lanka suffers credit rating cuts
COLOMBO, Dec 5, 2018 (BSS/AFP) – Two international credit rating agencies
downgraded Sri Lanka by one notch on Tuesday following almost six weeks of
political crisis.
Fitch said it believed Sri Lanka’s political upheaval, which began with
the sacking of its prime minister in October and has disrupted the
functioning of parliament, exacerbates the Indian Ocean nation’s external
financing risks.
Along with Standard and Poor’s, it warned that Sri Lanka was heading for
tougher times with politics complicating the effects of a challenging
external environment.
“Investor confidence has been undermined, as evident from large outflows
from the local bond market and a depreciating exchange rate,” Fitch said.
Fitch downgraded Sri Lanka from B plus to B, while Standard and Poor’s
also cut its rating from B plus to B.
The crisis began on October 26 when President Maithripala Sirisena removed
Ranil Wickremesinghe as prime minister and replaced him with the flamboyant
but controversial Mahinda Rajapakse.
However with Wickremesinghe’s supporters still controlling a majority in
parliament Rajapakse has lost two votes of confidence.
On Monday the Court of Appeal denied Rajapakse the authority to act as
prime minister and stripped his cabinet of their powers, giving Rajapakse
until next Wednesday to prove his legitimacy.
Last month Moody’s also lowered Sri Lanka’s rating from B1 to B2.
Sri Lanka has already abandoned plans after the Moody’s downgrade to raise
money through sovereign bonds and will pursue badly-needed revenue elsewhere.
Sirisena’s economic advisor said last month that “alternative finance”
raised locally would service much of Sri Lanka’s $4.5 billion in foreign debt
repayments due in 2019.
He said Sri Lanka would seek to extend a $1-billion loan from China by an
additional $500 million, but would only turn to international markets for
cash “as a last resort”.
Sri Lanka’s unrest has also prompted the International Monetary Fund to
suspend a tranche of a $1.5-billion bailout loan agreed to in 2016.
BSS/AFP/HR/0955