S&P downgrades SL on debt servicing risks, outlook stable
Source:FT
- Govt. revenue expected to decline to below 10% of GDP
- Economy projected to contract 0.3% before rebounding with 4.6% growth in 2021
- External position to deteriorate, current account deficit to grow to 3.4%
- Debt to balloon to 195% of reserves and external assets
Standard & Poor Global Ratings yesterday downgraded its long-term foreign and local currency sovereign credit ratings on Sri Lanka to B- from B, citing a deterioration in the country’s already weak fiscal position amid an expected economic contraction.
Issuing a statement, S&P said the country’s fiscal position weakened in 2019 as the Easter Sunday attacks affected economic activity and tourism earnings. Expenditures rose due to security-related and election spending while tax cuts led to a fall in revenue, the rating agency noted.
“With COVID-19 dampening domestic economic activity and lower excise duty earnings due to broad import restrictions, we now expect that government revenues will decline to below 10% of GDP in 2020,” said S&P Global Ratings, which sees Sri Lanka’s fiscal deficit rising to 8% of GDP in 2020 from 6.8% in 2019.
Net general Government debt is forecast to exceed 90% of GDP in 2020 and stay at an elevated level, according to the rating agency.
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Sri Lanka’s economy is projected to contract 0.3% in 2020 amid the pandemic, the weakest pace of growth since the country’s civil war ended. Real GDP is expected to rebound with 4.6% growth in 2021.
The economy’s external position is also expected to deteriorate, with the current account deficit estimated to expand to 3.4% of GDP in 2020 from 2.2% in 2019. External debt net of official reserves and financial sector external assets is expected to rise “sharply” to 195% in 2020 amid subdued exports.
The outlook on the country is stable, reflecting its access to ample resources to repay debt obligations.
