Sri Lanka’s Finance Minister Basil Rajapaksa (center), alongside the country’s central bank governor, Ajith Nivard Cabraal (left), in Colombo on January 9, 2022 (AFP / Archives / ISHARA S. KODIKARA )
Sri Lanka accused international rating agencies of undermining its efforts to replenish its currency reserves on Thursday in the aftermath of its rating downgrade by S&P fearing a default on the island’s sovereign debt .
The Central Bank of Sri Lanka said it was “disturbed” by S&P’s decision on Wednesday and renewed its commitment to honor all its debts, including $ 1.5 billion in sovereign bonds maturing this year.
“These repeated rating practices have undermined and delayed the authorities’ efforts to increase the inflow of foreign currency, and have had a negative impact on investor confidence, the influx of potential investments and on the gradual build-up of foreign exchange. official reserves of the country, “accuses the Sri Lankan Central Bank in a statement.
Sri Lanka’s foreign exchange reserves stood at $ 3 billion at the end of December, she said, adding that she expects new foreign currency inflows to repay nearly $ 7 billion. billion dollars this year.
While Colombo had just announced on Wednesday that it was in talks with Beijing, with a view to obtaining a new Chinese loan, S&P Global downgraded Sri Lanka’s rating one step further, from CCC to CCC +.
The debt contracted with Beijing, the island’s leading bilateral lender, represents at least 10% of its total external debt, which is growing. Its colossal debt has placed the strategic country of the Indian Ocean in a situation of dependence vis-à-vis China.
In 2017, the island had to cede to it, for 99 years, the port of Hambantota (south), after being unable to repay a loan of $ 1.4 billion for its construction.
S&P Global argued that the downgrade reflected Sri Lanka’s worsening ability to maintain foreign exchange reserves and the higher risk of default.
“Timely debt servicing is likely to become increasingly difficult over the next 12 months, given Sri Lanka’s vulnerable state, large budget deficits, and heavy government debt. and high interest payments, ”S&P said in a statement.
S&P is the third of the “big three” international rating agencies to downgrade Sri Lanka since October, after Moody’s and Fitch.
The Easter 2019 attacks and the Covid-19 pandemic had disastrous consequences on the island’s economy, deprived of its tourist manna, the main provider of foreign currency.
The government has had to impose drastic restrictions since 2020 to control its foreign currency reserves, including banning many imports. But these measures have also had the effect of reducing certain economic activities and causing serious shortages.
© 2022 AFP
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