S&P Global Ratings downgraded Sri Lanka’s sovereign ratings on Friday, as country’s fiscal position is expected to deteriorate over coming years.
The sovereign rating was lowered to ‘CCC+’ from ‘B-’. The ratings are well below the investment grade. The outlook was stable.
According to S&P, risks to debt servicing capacity have risen, as the government’s access to external financing has become increasingly dependent on favorable [business][1], economic, and financial conditions.
The Covid-19 has significantly narrowed the government’s fiscal space and its ability to generate earnings.
High fiscal deficits and excessive domestic liquidity will put downward pressure on the exchange rate and worsen the risks associated with the government’s already-high debt burden, S&P said.
The [economy][2] is forecast to contract sharply by 5.3 percent in 2020 largely due to the Covid-19 pandemic. Nonetheless, real GDP growth is expected to accelerate to 4.3 percent in 2021, albeit from a low base, and average 4.5 percent in 2021-2023.
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