Sri Lanka’s Rating Cut at S&P Global to Reflect Default Risk

(Bloomberg) -- Sri Lanka’s credit rating was pushed further into junk at S&P Global Ratings, which cited the nation’s deteriorating fiscal position as a risk to the sovereign’s ability to service debt.

The country’s long-term foreign-currency credit rating was cut to CCC+ from B-, with a stable outlook, according to a statement from S&P. Sri Lanka’s credit score is now the same as the one assigned to Argentina, Mozambique and Belize.

“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 favorable business, economic, and financial conditions,” the ratings company said. “The downgrade stems in part from the impact of Covid-19, which has significantly narrowed the government’s fiscal space and its capacity to generate earnings through sectors such as tourism.”

Sri Lanka last month announced a plan to increase spending to spur economic growth, as Prime Minister Mahinda Rajapaksa sought to offset a decline in investments as a share of gross domestic product. S&P expects the expansionary budget measures to weaken the nation’s fiscal position over the next few years in the absence of favorable economic and financial conditions. Its move to downgrade follows similar actions by Moody’s Investor Service and Fitch Ratings.

The credit score could be slashed further if external buffers decline more than currently forecast, S&P said. Any difficulty in accessing external financing could also be another reason for future rating downgrade as it would hit Sri Lanka’s ability to service debt, it said.

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