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Rating agencies downgrade Sri Lanka amid political crisis

Reuters  |  COLOMBO 

By Shihar Aneez

COLOMBO (Reuters) - agencies and downgraded on Tuesday, citing refinancing risks and an uncertain policy outlook, after Maithripala Sirisena's sacking of his in October triggered a political crisis.

A bitter row over the ouster of former in October and the competing influences of and have shattered the island's fragile ruling coalition.

Mahinda Rajapaksa, who replaced Wickremesinghe as prime minister, lacks a parliamentary majority and has been prevented by a court from holding office, delaying the 2019 budget and leading to violent scenes in parliament.

and S&P cut their ratings to B from B+ following the third major rating agency, Moody's, which downgraded the island nation on Nov. 20.

Both firms cited risks that could struggle to refinance its debt. The country has a "heavy" external debt repayment schedule between 2019 and 2022, said.

"Investor confidence has been undermined, as evident from large outflows from the local bond market and a depreciating exchange rate," Fitch said in a statement.

It said plans to raise funds through bilateral and commercial borrowing, or through the exercise of foreign currency swaps, could be challenging, though it rated its outlook at "stable", meaning it saw a longer-term recovery for the that was badly hit by weather-related disruptions in 2016 and 2017.

S&P said there had been a "significant erosion" in the political situation which could affect Sri Lanka's ability to refinance its debts.

"It is a mess at the moment," a ministry told

"We have to come out of this dragging political crisis. The borrowing cost is anyway going to rise with this," said the official, who declined to be identified.

Sirisena told a meeting of his Freedom Party the crisis would end "in the next seven days", without elaborating.

The central said in a statement that the downgrades by Fitch and S&P were based on "uncorroborated facts on the country's macroeconomic fundamentals".

Senior told Reuters, before the S&P downgrade, that and Fitch had been "too hasty".

"Such uncertainties could be very short-lived," he said.

The rupee has weakened nearly 17 percent this year, while yields on dollar bonds due in 2022 have risen by more than a percentage point to 8.24 percent since the crisis began.

(Editing by and Nick Macfie)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, December 04 2018. 18:28 IST
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