Sri Lanka Growth: Sri Lanka faces substantial credit risk, default a real possibility; growth forecast predicted at 3.3%

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The beleaguered Sri Lankan economy faces substantial credit risk, with default ‘a real possibility’, Singapore-based Fitch Ratings said on Tuesday. The ratings agency also revised Sri Lanka’s growth forecast for 2021 to 3.3 % from 3.8 %, due to the surge in coronavirus cases in July-August.

“Sri Lanka’s public and external finances remain fragile, as reflected in our ‘CCC’ rating in place since November 2020 and affirmed in June 2021. A rating at this level indicates substantial credit risk, with default ‘a real possibility,’ ” Fitch said.

The island nation’s external liquidity position remains stressed, with USD 26 billion in sovereign foreign-currency obligations coming due between now and 2026.

Going forward, Fitch projects the country’s foreign-exchange reserves to plummet to USD 2.5 billion by 2023, down from the USD 3.5 billion in August 2021, following a grant received through the International Monetary Fund’s special drawing rights to the tune of USD 780 million.

Through the rest of 2021, the majority of foreign-currency debt repayments consist of project and syndicated loans.

Sovereign bond repayments of USD500 million and USD1 billion due in January and July 2022, respectively.

Referring to the six-monthly road map published in October by the Central Bank of Sri Lanka, the Fitch says although authorities have outlined plans to secure funds through bilateral, multilateral and other syndicated loans, the financing plans contained limited details, including the sources and time-lines of financing arrangements.

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