Fitch has downgraded Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to CC from CCC, following S&P’s downgrade to CCC from CCC+ last week. Fitch expressed their view of a higher probability of default in the coming months with worsening external liquidity and a drop in foreign reserves with higher external debt payments and limited financing inflows. Foreign currency reserves have dropped by $4bn since the end of 2020. Total foreign currency debt repayments including principal and interest for 2022 amounts to $6.9bn, which is 430% of official gross international reserves as of November 2021. The same number for the period 2022 through to 2026 is $26bn.
The Sri Lankan rupee has depreciated against the dollar by 7-8% since the end of 2021. The challenging external position and exchange rate pressure will have knock-on effects on economic activity and economic performance is likely to weaken in 2022. Growth is expected to slow to 2% in 2022 from an estimated 3.6% in 2021 and recover to 4.3% in 2023 due to base effects and easing of domestic pressures, as per Fitch.
The 5.875% bonds due July 2022 continue to trade at about 71 cents on the dollar. The $500mn bond maturing today has been repaid in full as per Central Bank Governor Ajith Nivard Cabraal.