Sri Lanka hits out at Fitch for downgrading ranking

COLOMBO (News1st): Sri Lanka has strongly disputed Fitch Ratings' decision to downgrade the country's rating, citing the move as "ill-founded" and "ill-timed", amidst an economic crisis due to COVID-19. "Their assessment shows a rush to judgment and exposes prejudicial nature, at a time when the whole world is grappling with a global health crisis," the government said in a statement. Fitch, on Friday, degraded Sri Lanka's rating from B to B- and revised its outlook to negative, stating that the economic impact of the novel coronavirus will worsen Sri Lanka's debt repayment challenges. Sri Lanka has to settle at least 4.8 billion dollars as foreign debt this year but failed to raise 220 million dollars through development bonds after the auction went undersubscribed with only 22 million dollars of bids coming from investors. "The pandemic will especially hurt the tourism sector, which, combined with weaker domestic demand," the rating agency said explaining the move to downgrade the country's ranking. However, Colombo responded saying it would "categorically disagree with the assessment of risks for Sri Lanka". Tourism, a key revenue-generating industry to the south asian island has been badly affected, with tourist arrivals dropping drastically by 70.8 percent in March when compared to last year. The government said it has implemented several measures to restore normalcy in the country, and that economic activity is to pick up during the second half of 2020. However, Fitch said it expects Sri Lanka's budget deficit to widen to 9.3 percent of the gross domestic product in 2020 "from an estimated 6.8% in 2019." The country's central bank also recently showed that the trade deficit in January had widened by 18.3 percent to 730 million dollars from 617 million in January 2019 due to the decline in exports and the drop in revenue generated by the tourism industry. However, Sri Lanka blamed the rating agency for "grossly overstating the fiscal deficit" and "ignoring" the measures it has taken to "curb expenditure and the impact of a delayed budget for 2020" "Government has taken proactive measures in mobilising funds from multiple sources of market-based and official sources of financing to effectively improve terms and conditions of financing," the statement stressed. Recently, the government slapped a raft of policy measures to control imports and foreign exchange outflows, while relaxing forex regulations to draw in foreign currency from Sri Lankans and expatriates into the country. Fitch Ratings explained it had reversed Sri Lanka's outlook to negative as the risks associated with the country's economy are skewed clearly to the downside. "The central bank has responded to market pressures by ensuring liquidity and allowing the currency to adjust, thereby protecting reserves," Fitch said. "Nevertheless, capital outflow pressure and market refinancing risks remain in the current risk-averse environment". The Central Bank has printed approximately Rs. 213 billion since the first week of March this year, along with the COVID-19 outbreak in Sri Lanka. The government, however, insisted it will assess the economic impacts of the domestic and external environments and "honour all its obligations while safeguarding interests of all stakeholders".