Fitch downgrades Sri Lanka’s debt to ‘restrictive default’ after ‘preventive default’

Dove:

New York-based ratings agency Fitch has downgraded debt-ridden Sri Lanka’s sovereign rating to ‘limited default’ after the country failed to make international sovereign bond payments at the end of the 30-day grace period.

The downgrade came when Central Bank Governor P Nandalal Weerasinghe acknowledged on Thursday that Sri Lanka would not be able to repay its debts until it restructured them.

The bond payments, which were due April 18, were $78 million, with a 30-day grace period that expired on Wednesday.

On April 12, Fitch had downgraded Sri Lanka to “C”. “We have downgraded Sri Lanka’s currency issuance ratings from ‘D’ to ‘C’, given default on senior unsecured currency bonds and triggered cross-default clauses in other international sovereign bonds in rated currencies”. the rating agency announced on Thursday.

The devastating downgrade means the island nation of 22million has fallen into default for the first time in its history, even as the new government led by Prime Minister Ranil Wickremesinghe tries to end the crippling economic collapse that caused large-scale protests and an all-out political crisis.

Mr Wickremesinghe said on Wednesday the country had missed a payment to the Asian

Development Bank, blocking new funds amid warnings that the country hit by the currency crisis could be barred from multilateral funding in a new coup.

Sri Lanka has already suspended repayments of international sovereign bonds, commercial bank loans, Exim bank loans and bilateral loans. However, multilateral lenders and senior creditors were excluded. Sri Lanka is currently negotiating a loan with the IMF.

The country had to pay $106.34 million this year but only managed to pay $12.4 million in April.
Mr Weerasinghe said on Thursday the nation had announced a precautionary default.

“We announced a precautionary default; we announced that we are not going to pay,” he said.
Mr Weerasinghe said: ‘you can technically call it a hard default based on the agreements’.

He said on April 12 that Sri Lanka had announced the suspension of debt payments because it could not pay.

“We had already announced that we will not be able to pay until we restructure the debt,” he said, adding that the appointment of financial advisers and lawyers for the debt restructuring could be done soon.

On Thursday, Mr Wickremesinghe accepted a generous offer from Maldivian President Mohamed Nasheed to help the indebted island nation secure international aid in the ongoing economic crisis.