S&P revises Sri Lanka's outlook to negative, CCC-plus/C ratings affirmed

Singapore, Aug 28 : S&P Global Ratings has revised its outlook on Sri Lanka's long-term ratings to negative from stable.
It also affirmed CCC-plus long-term sovereign credit ratings and C short-term ratings on the island nation.
The negative outlook reflected S&P's expectation that Sri Lanka's financing environment may get more difficult over the next 12 months. This will affect Sri Lanka's ability to service its debt.
"We could lower our ratings if Sri Lanka's attempts to boost reserves through the issuance of SLDBs, asset sales and other means fall short of the government's expectation, leading to higher risk on its ability to service debts."
S&P said it may revise the outlook to stable or raise the rating if external buffers can be significantly boosted, or if Sri Lanka's economic recovery is much stronger than expected.
This could lower the risks associated with the government's debt-servicing capacity.
"We revised the outlook to negative to reflect our assessment that risks to Sri Lanka's debt-servicing capacity are rising, and the government's access to external financing is increasingly dependent on favorable economic and financial conditions."
S&P said the country's relatively modest income levels, vulnerable external profile, sizable fiscal deficits, heavy government indebtedness, and hefty interest payment burdens reflect weak and evolving governance and institutional settings.
These factors significantly constrain ratings. While expansionary macroeconomic policies have provided some relief to the pandemic-hit economy, said S&P, they have weakened the government's fiscal position and worsened the risks associated with the government's already high debt burden.