The Central Bank of Sri Lanka has termed the Fitch Ratings decision to downgrade the country’s international sovereign rating a ‘hasty move’, asserting that the US credit rating agency has failed to recognise the positive developments taken by the government to galvanise the economy.
Fitch Ratings on Saturday has downgraded Sri Lanka’s sovereign rating to ‘CC’ from ‘CCC’, citing a growing risk of debt default in 2022, despite repeated assurances from the central bank that steps will be taken to meet all repayments.
“In a rather hasty move, Fitch Ratings has downgraded Sri Lanka’s sovereign rating on December 17, 2021, demonstrating its failure to recognise the positive developments taking place in Sri Lanka,” the Central Bank of Sri Lanka said in a media release.
The rating agency said 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.
“Obligations include two international sovereign bonds of USD 500 million due in January 2022 and USD 1 billion due in July 2022,” Fitch said.
The Central Bank said that contrary to Fitch’s claims on increased probability of a default in the coming months, measures undertaken by the government to secure support from friendly nations were nearing fruition.
The credit lines from India and Middle-Eastern countries were also not given due consideration, it said.
“The six-month road map for ensuring macroeconomic and financial system stability clearly articulated the expected cash flows by December 2021 and March 2021. The government and the Central Bank remain confident that these inflows will materialise and the end-2021 level of Gross Official Reserves will remain above USD 3 billion. Fitch appears to have ignored the standby SWAP facility with the People’s Bank of China of around USD 1.5 billion,” the media release said.
Fitch said Sri Lanka’s foreign-exchange reserves have declined much faster than it expected, owing to a combination of a higher import bill and foreign-currency intervention by the Central Bank of Sri Lanka.
“Foreign exchange reserves have declined by about USD 2 billion since August, falling to USD 1.6 billion at end-November, equivalent to less than one month of current external payments (CXP). This represents a drop in foreign-currency reserves of about USD 4 billion since end-2020,” it said.
The Central Bank argued that the Sri Lankan government has given clear assurances that all debt obligations in the period ahead will be honoured despite the severe stress caused by the pandemic over the past two years.
The Central Bank further stated that the decision to downgrade Sri Lanka without waiting till the first test date of Dec 31, 2021, showed nothing but recklessness, which could only hurt investors.
“All stakeholders of the economy, including international investment partners, are requested not to be dissuaded by this unjustified rating action, but instead, work with Sri Lanka to surf the turbulent tides, which is expected to settle in the next few days,” the release added.