Fitch Downgrades SL's Rating Over Covid-19 Impact

Says pandemic will worsen already-high public and external repayment risks

SL’s external liquidity ratio among weakest in ‘B’ rating category

Roughly US$ 13.8bn of FX debt will come due over 2021-2023

Fitch expects budget deficit to widen to 9.3% of GDP in 2020

Projects government debt/GDP to rise to about 94% in 2020

Forecasts SL’s GDP to contract by 1.0% in 2020

Fitch Ratings yesterday downgraded Sri Lanka’s Long-Term Foreign and Local-Currency Issuer Default Ratings (IDR) to ‘B-’, from ‘B’ with a Negative Outlook, saying that the shocks from the coronavirus pandemic will aggravate the risks associated with the country’s debt sustainability.

“The shock to Sri Lanka’s economy from the coronavirus pandemic will exacerbate the already-rising public and external debt sustainability challenges following tax cuts and an associated shift in fiscal policy late last year.

The pandemic will especially hurt the tourism sector, which, combined with weaker domestic demand, will further damage Sri Lanka’s public and external finance metrics,” the rating agency said.

Sri Lanka’s external financing challenges have increased in the current environment of global risk aversion and financial market volatility, with large upcoming external debt redemptions and limited foreign-currency (FX) reserves.

The country’s reserves are about US$ 7.2 billion, while the sovereign’s external debt payments from May to December 2020 amount to US$ 3.2 billion, including a US$ 1.0 billion international sovereign bond payment due in October.