By Shihar Aneez
COLOMBO (Reuters) - Credit rating agencies Fitch and Standard & Poor's downgraded Sri Lanka on Tuesday, citing refinancing risks and an uncertain policy outlook, after President Maithripala Sirisena's sacking of his prime minister in October triggered a political crisis.
Mahinda Rajapaksa, who replaced Wickremesinghe as prime minister, lacks a parliamentary majority and has been prevented by a court from holding office, delaying the country's 2019 budget and leading to violent scenes in the island's parliament.
Fitch and S&P cut their ratings by one notch to B from B+, following the third major rating agency, Moody's, that downgraded the island nation on Nov. 20.
"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.
The rating agency said that plans to raise funds through bilateral and commercial borrowing, or through the exercise of foreign currency swaps, could be challenging in the current political climate, though it rated its outlook at "stable", meaning it saw a longer-term recovery for the economy, that was badly hit by weather-related disruptions in 2016 and 2017.
S&P, meanwhile, said there has been a "significant erosion" in the political situation in Sri Lanka which could affect its ability to refinance its debts.
"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 named.
"We are of the view that actions by both rating agencies are too hasty as their decisions are based on short-term political uncertainties. Such uncertainties could be very short-lived only for couple of weeks," Central Bank Senior Deputy Governor Nandalal Weerasinghe told Reuters before S&P became the latest rating agency to downgrade.
The rupee currency has weakened nearly 17 percent so far this year, while yields on Sri Lanka's dollar bonds due in 2022 have risen by more than a percentage point to 8.24 percent since the crisis began.
(Editing by Alasdair Pal and Jacqueline Wong)
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