Sri Lanka

A would-be hub of Indo-Pacific commerce and global tourist gem, Sri Lanka was already struggling to deliver on grand visions before the coronavirus crisis struck the world economy, Bloomberg News reported. The next few months may determine its ability to avert a painful debt restructuring. The South Asian nation is locked in talks with the International Monetary Fund for emergency-financing aid, after its second longer-term program with the fund in less than a decade expired last Tuesday.

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Sri Lanka’s finances were fragile long before the coronavirus delivered its blow, but unless the country can secure aid from allies like China, economists say it may have to make a fresh appeal to the IMF or default on its debt, Reuters reported. All the tell-tale crisis signs are there: a tumbling currency, credit rating downgrades, bonds at half their face value, debt-to-GDP levels above 90% and almost 70% of government revenues being spent on interest payments alone.

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Fitch Downgrades Sri Lanka's Rating

Fitch Ratings has downgraded Sri Lanka's long-term foreign-currency issuer default rating, citing political upheaval that has resulted in the country having no functional government, the International New York Times reported on an Associated Press story. Fitch says it lowered the country's rating to B from B plus with a stable outlook, reflecting heightened external financing risks, uncertain policy outlook and a slowdown in fiscal consolidation.

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Sri Lanka's largest party warned Tuesday that the island could default on its debt as Moody's slashed its credit rating and a bitter power struggle dragged into a fourth week, Daily Mail reported. The South Asian nation has been gripped by an unprecedented political crisis since the president sacked his prime minister on October 26 and appointed former strongman Mahinda Rajapakse in his place. Ranil Wickremesinghe, the ousted premier and leader of the United National Party -- the largest single party in parliament -- refused to step down, declaring his sacking illegal.

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Sri Lanka plans to put two state-owned hotel companies up for sale within the next six months in a sale that could raise $500 million for the island nation as it seeks to bolster its finances, the finance minister said on Tuesday. Sri Lanka faces repayments on expensive infrastructure foreign loans starting this year and already has a hefty debt burden, while its rupee currency has plumbed record lows, Reuters reported. “We’re going through the legal hoops of preparing (the sales),” State Minister of Finance Eran Wickramaratne said in an interview.
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Sri Lanka's public debt repayments will grow to a record $4 billion in 2019, the finance ministry said, blaming "colossal borrowing" by the previous government, Reuters reported. "Sri Lanka is embroiled in a gigantic debt trap," Finance Minister Ravi Karunanayake said in a statement. The cost of repaying and servicing foreign-held debt will jump more than 32 percent this year to $2.42 billion from 2016's 1.83 billion, rising to $2.56 billion next year, it said.
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Sri Lanka’s central bank cut one key interest rate while holding another after inflation eased to the lowest level in about two years, ignoring advice from the International Monetary Fund to hold off on further easing, Bloomberg News reported. The Central Bank of Sri Lanka reduced the benchmark reverse repurchase rate, which it renamed the standing lending facility rate, by 50 basis points to 8 percent, Governor Ajith Nivard Cabraal said in an interview in Colombo on Dec. 31.
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