Sri Lanka’s credit ratings has been cut by global ratings agency Sovereign and Poor (S&P) to CCC+ from the previous rating of B-. This rating cut has been attributed to fiscal deterioration and external financial risks.
“We lowered our ratings on Sri Lanka based on our assessment that risks to debt servicing capacity have risen, as the government’s access to external financing has become increasingly dependent on favourable business, economic, and financial conditions. The downgrade stems in part from the impact of Covid-19, which has significantly narrowed the government’s fiscal space”.
“We forecast the economy will contract sharply by 5.3 per cent in 2020 largely due to the COVID-19 pandemic. Although the negative economic impact likely peaked in the second quarter of 2020, the nascent recovery was derailed by another wave of infections in early October,” S&P said.
“Nevertheless, we believe Sri Lanka’s economy will recover in 2021, boosted by a stabilization in domestic activity and expansionary monetary and fiscal settings. External demand should also recover more strongly, particularly if tourism flows could restart”, it added.