International credit rating agency Standard & Poor’s (S&P) lowered Sri Lanka’s national credit rating to “selective default” (SD) on the 25th (local time), which is on the verge of default due to economic difficulties.
According to Bloomberg News reports, S&P announced that it has lowered Sri Lanka’s national credit rating, which is temporarily in default, by three steps from the previous “CC” to “SD.”
S&P assessed that the Sri Lankan government declared a temporary default on bond interest of $78 million on the 12th, and that it does not seem to be able to pay interest even after the 30-day grace period.
Earlier on the 13th, S&P downgraded Sri Lanka’s credit rating to “CC” and presented the outlook as “negative,” warning that it will lower its credit rating to “SD” again if it fails to repay the principal and interest on the 18th, the next interest payment date.
Moody’s, another credit rating agency, also lowered its national credit rating by two notches from “Caa2” to “Ca” on the 18th, saying Sri Lanka is heading for a series of defaults.
The “Ca” rating is a “default imminent” rating just above the default rating, and countries that received Ca ratings from Moody’s include Argentina, Zambia, and Cuba in addition to Sri Lanka.
Sri Lanka’s external debt amounts to about 51 billion dollars, but its foreign currency reserves stood at only 1.93 billion dollars as of the end of March.
According to an analysis by JP Morgan Chase and others, Sri Lanka’s external debt to pay back this year is $7 billion (about 8.75 trillion won) and $25 billion for five years.
Sri Lanka, which has suffered from the collapse of its main industry, the tourism sector, and a surge in external debt over the past few years, is facing its worst economic crisis as its fiscal policy has failed due to excessive tax cuts.
On top of that, political turmoil is intensifying, with bloody anti-government protests taking place everywhere as people’s livelihoods have been disrupted by shortages of daily necessities and soaring prices due to lack of foreign currency.