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Fitch downgrades Sri Lanka as debt default fears mount

COLOMBO: Global scores company Fitch downgraded cash-strapped Sri Lanka the day before today because of mounting fears of a sovereign default on its $26 billion overseas debt, however Colombo insisted it is going to meet its duties.

The downgrade by way of one notch from “CCC” to “CC” got here an afternoon after Sri Lanka reported a 1.5 % contraction within the 3rd quarter of this 12 months as a foreign currency echange disaster wrecked its restoration from the coronavirus pandemic. Fitch stated the downgrade mirrored its view of an “larger likelihood of a default tournament in coming months” as Sri Lanka’s overseas reserves slumped to $1.58 billion on the finish of November.

“We imagine it is going to be tricky for the federal government to satisfy its exterior debt duties in 2022 and 2023 within the absence of recent exterior financing assets,” the company stated in a observation.

Then again, the Central Financial institution of Sri Lanka accused Fitch of creating a “reckless” downgrade ignoring “certain tendencies” within the economic system. “It should even be famous that the federal government has given a transparent assurance that Sri Lanka will honor all debt duties within the duration forward,” the financial institution stated in a observation.

Fitch famous Sri Lanka has to pay off two world sovereign bonds of $500 million in January 2022 and $1.0 billion in July 2022 with little growth in capital inflows into the country of 21 million folks. It added foreign-currency debt carrier bills, together with foremost and hobby, general $6.9 billion for subsequent 12 months, the similar of just about 430 % of the island’s legit gross world reserves as of November 2021.

The island’s tourism-dependent economic system used to be hammered by way of the pandemic and government spoke back to falling foreign currency echange reserves with a extensive import ban, triggering shortages together with meals, gasoline and drugs. The disaster has unfold to production and services and products, and agriculture has additionally suffered badly because of a ban on agrochemical imports.

Sri Lanka’s economic system had grown 12.3 % in the second one quarter however a 3rd wave of COVID-19 infections that compelled a 41-day curfew noticed services and products and industries closely affected, the statistics workplace stated on Friday. Its overseas reserves of $1.58 billion on the finish of November have reduced from $7.5 billion when the federal government of Gotabaya Rajapaksa took over two years in the past.

Supermarkets have rationed staples corresponding to milk powder, sugar, lentils, tinned fish and rice as business banks run out of bucks to finance imports. The central financial institution has been interesting for overseas currency-even unfastened alternate that individuals can have after coming back from in another country trips-as the federal government desperately seems for bucks.  The banking regulator has additionally warned it is going to freeze accounts of casual cash changers who be offering upper costs for onerous foreign money than legit alternate charges. —AFP

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