Wednesday, 02 March 2016 - 10:28
Fitch Downgrades Sri Lanka to 'B+'; Outlook Negative
Fitch Ratings has downgraded Sri Lanka's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'B+' from 'BB-'. A Negative Outlook has been assigned to the IDRs.
According to Reuters reports, the issue ratings on Sri Lanka's senior unsecured foreign- and local-currency bonds are also downgraded to 'B+' from 'BB-'. The Country Ceiling is downgraded to 'B+' from 'BB-' and the Short-Term Foreign-Currency IDR is affirmed at 'B'.
The rating action reflects increasing refinancing risks, significant debt maturities, weaker public finances and decline in foreign-exchange reserves.
In Fitch's view, the Island's situation reflects a weakening in policy coherence that increases the likelihood of Sri Lanka requiring external liquidity support from the IMF and other multilateral institutions.
Sri Lanka's external liquidity ratio, as measured by Fitch at the end of 2015, was 70.9%, which is far below the median of 'B'-rated peers' of 171.9% and the 'BB' median of 152.4%.
Sri Lanka faces significant debt maturities in 2016 amid the country's vulnerability to a shift in investor sentiment. Fitch estimates the sovereign's external debt service to be close to USD4bn for the rest of 2016, compared with FX reserves of USD6.3bn (end-January 2016), reports the Reuters.
However, prevailing low oil prices will continue to support Sri Lanka's current-account deficit in the near term. Fitch expects the current-account deficit to remain manageable at about 3% of GDP over 2016-17.
The deterioration in Sri Lanka's fiscal finances is driven partly by consistently low general government revenues. At an estimated 13% of GDP, Sri Lanka's gross general government revenues remain far below the 'B' median of 25.4% and the 'BB' median of 26%. The 2016 budget did little to address this issue directly and absent any significant fiscal consolidation, Fitch expects continued fiscal slippage over 2016-17.
Sri Lanka's gross general government debt (GGGD) burden is estimated to have increased to more than 75% of GDP by the end of 2015, up from 71% at the end of 2014 and much higher than the 'B' median of 52% of GDP and 'BB' median of 43.6%.