April 25, 2022: S&P Global Ratings downgraded Sri Lanka’s rating as an issuer of foreign currency debt to “selective default” after the South Asian country missed interest payments on government bonds, S&P said Monday.
The bonds that had missed payments and maturing in 2023 and 2028 were reduced to default and the overall rating could be further downgraded to ‘D’ upon confirmation of non-payment after a 30-day grace period.
S&P said it does not expect the government to make any payments during that time.
Sri Lanka’s economic collapse has its roots in 2019 when the government of President Gotabaya Rajapaksa approved a major tax cut that depleted the treasury even more than expected.
The weight of COVID-19 continued to weigh on revenues, as import costs skyrocketed and the situation deteriorated to widespread civil unrest on the streets.
Earlier this month, Sri Lanka suspended its debt service payments and approached the International Monetary Fund.
Over the weekend, the IMF said it has had “fruitful technical talks” with Sri Lanka over its loan request, while the World Bank said it was preparing an emergency aid package.
According to data from Refinitiv, Sri Lanka has approximately $14 billion in outstanding foreign bonds plus $26 billion in local currency debt.
“The negative outlook for our long-term rating of local currency government bonds in Sri Lanka reflects the high risk that the government could restructure its local currency debt amid the country’s economic, external and fiscal pressures,” S&P said in a statement. .
The Sri Lankan stock market was closed for half an hour Monday after shares fell nearly 10% in their first session since the central bank doubled its interest rates two weeks ago to tame inflation.
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