S&P Global cut Sri Lanka’s CCC+ sovereign rating outlook to negative from stable on Friday, warning the government may find it increasingly difficult to finance itself over the next 12 months.
“The negative outlook reflects our expectation that Sri Lanka’s financing environment may get more difficult over the next 12 months,” S&P said. “This would affect Sri Lanka’s ability to service its debt.”
Worries that Sri Lanka could be heading for its first sovereign default were rising well before the Covid-19 pandemic struck.
Its debt-to-GDP level has risen above 100 per cent, it spends over 80 per cent of its revenue just on bond market interest payments and the US$3 billion of reserves it has left are barely enough to cover a couple of months of spending.
Although it is due to get an US$800 million infusion of newly approved IMF Special Drawing Rights “this will not be sufficient for the government to meet upcoming maturities of more than US$5 billion till the end of 2022,” S&P said referring to bond payments.
It added the likelihood that the government will post large fiscal deficits over an “extended period” would worsen the government’s already extremely high debt stock.
“We expect the increase in net general government debt to average 10.3 per cent over 2021-2024.”