S&P downgrades Sri Lanka to ‘selective default’ on missed payments

Protesters shout slogans against Sri Lankan President Gotabaya Rajapaksa near the presidential secretariat, amid the country’s economic crisis in Colombo, Sri Lanka, April 10, 2022. REUTERS/Dinuka Liyanawatte/File Photo

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April 25 (Reuters) – S&P Global Ratings downgraded Sri Lanka’s rating as a foreign currency debt issuer to “selective default” after the South Asian country failed to pay interest on the bonds sovereigns, S&P said Monday.

Bonds that had not been paid, maturing in 2023 and 2028, were reduced to “default” and the overall rating could be further reduced to “D” upon confirmation of non-payment after a grace period of 30 days.

S&P said it does not expect the government to make any payments during this time.

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Sri Lanka’s economic collapse dates back to 2019, when President Gotabaya Rajapaksa’s government approved a major tax cut that depleted treasury coffers even more than expected.

The brunt of COVID-19 further weighed on revenues as the cost of imports soared and the situation deteriorated to the point of large-scale civil unrest in the streets.

Earlier this month, Sri Lanka suspended debt service payments and went to the International Monetary Fund.

Over the weekend, the IMF said it had had “fruitful technical discussions” with Sri Lanka over its loan request, while the World Bank said it was preparing an emergency aid package. Read more

Sri Lanka has about $14 billion in foreign bonds outstanding plus $26 billion in local currency debt, according to Refinitiv data.

“The negative outlook on our long-term sovereign local currency ‘CCC-‘ rating of Sri Lanka reflects the elevated risk that the government will restructure its local currency debt amid the country’s economic, external and fiscal pressures,” S&P said. in a press release.

The Sri Lankan stock market was closed half an hour into trading on Monday after shares fell nearly 10% in their first session since the central bank doubled interest rates there has two weeks to bring inflation under control.

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Reporting by Rodrigo Campos Editing by Chizu Nomiyama

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