Global ratings agencies have warned that the process of defaulting on cash-strapped Sri Lanka’s debt has begun, saying its “capacity to pay is irrevocably compromised”.
Ratings Fitch and S&P Global have lowered their assessment of the island nation, which is facing its worst economic crisis since its independence in 1948.
Thousands of protesters have taken to the streets to demand the resignation of President Gotabaya Rajapaksa and his brother and Prime Minister Mahinda Rajapaksa, as inflation, food shortages and lack of fuel continue to bite citizens due to the decline in foreign exchange reserves.
On Thursday, hundreds of Sri Lankans celebrated their traditional New Year’s Eve opposite the president’s office, where they camped out for a sixth day to demand his resignation in the face of the country’s worst economic crisis.
S&P Global Ratings lowered the island nation’s foreign exchange rating from “CC” to “CC” citing the unprecedented economic crisis caused by the drying up of foreign exchange reserves.
“Sri Lanka’s debt restructuring process will likely be complicated and could take months,” the agency said in a statement.
According to the financial services company, the “CC” rating means “a default has not yet occurred, but should be a virtual certainty.”
Similarly, Fitch Ratings lowered the South Asian country’s rating on its decision to suspend external debt payments. He put Sri Lanka in “near default”.
“We are going to downgrade [rating] once a payment on an issue is missed and the grace period has expired,” the company said in a statement Wednesday.
The rating agencies’ warning came a day after the Sri Lankan government announced it was temporarily defaulting on all of its foreign debt.
Read also | Arjuna Ranatunga urges Sri Lankan players to stop playing IPL and defend the country amid economic crisis
Sri Lanka’s finance ministry said it otherwise had a “spotless record” of paying dues since independence from the UK in 1948.
“However, recent events … have eroded Sri Lanka’s fiscal position, making normal servicing of external public debt obligations impossible,” he said in a statement on Tuesday.
Read also | Sri Lanka defaults on all of its external debt: Rajapaksa government
The IMF rated Sri Lanka’s debt as unsustainable last month, the ministry noted.
Sri Lanka’s foreign exchange reserves stood at $1.93 billion at the end of March. However, it has around $4 billion in foreign debt payments due this year, the BBC reports.
Watch | Sri Lankan protesters celebrate New Year near the president’s office amid economic crisis
(With agency contributions)