Sri Lanka’s debt ‘default process has begun’, warn credit rating agencies

Global credit rating agencies have warned that cash-strapped Sri Lanka’s debt default process has begun, indicating that its "payment capacity is irrevocably impaired".

Fitch and S&P Global ratings lowered their assessment of the island nation, which is facing its worst economic crisis since independence in 1948.

Thousands of protesters have been hitting the streets demanding the resignation of President Gotabaya Rajapaksa and his brother and Prime Minister Mahinda Rajapaksa, as inflation, food scarcity and lack of fuel continue to bite the citizens on account of dwindling foreign reserves.

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On Thursday, hundreds of Sri Lankans celebrated their traditional new year opposite the president’s office, where they camped out for a sixth day demanding his resignation over the country's worst economic crisis.

S&P Global Ratings lowered the island nation’s foreign currency rating to “CC” from “CCC” citing the unprecedented economic crisis brought upon by dried foreign reserves.

“Sri Lanka’s debt restructuring process is likely to be complicated and may take months to complete,” the agency said in a statement.

According to the financial service company, the “CC” rating stands for “default has not yet occurred, but is expected to be a virtual certainty”.

Similarly, Fitch Ratings downgraded the South Asian country’s assessment over its decision to suspend payments of foreign debt. It has put Sri Lanka at "near default".

"We will downgrade the [rating] once a payment on an issuance is missed and the grace period has expired,"the firm said in a statement on Wednesday.

The warning from the rating agencies came a day after the Sri Lankan government announced that it is temporarily defaulting on all of its foreign debts payments.

Sri Lanka's Finance Ministry said it otherwise had an "unblemished record" of paying its dues since independence from the UK in 1948.

"Recent events, however... have eroded Sri Lanka's fiscal position that continued normal servicing of external public debt obligations has become impossible," it said in a statement on Tuesday.

The IMF had assessed Sri Lanka's debt to be unsustainable last month, the ministry noted.

Sri Lanka's foreign reserves stood at $1.93bn at the end of March. However, it has around $4bn in foreign debt payments due this year, reports BBC.

Watch |Sri Lankan protesters mark new year near president's office amid economic crisis

(With inputs from agencies)