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Rating agencies downgrade Sri Lanka as political crisis dents confidence

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 sacking 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 country's 2019 budget and leading to violent scenes in the island's parliament.

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.

Both firms cited risks that could struggle to refinance its debts. 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.

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 which could affect its ability to refinance its debts.

"It is a mess at the moment," an in the country's ministry told Reuters, adding the downgrade would raise borrowing costs by a few percent.

"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.

The central said both Fitch and have been too hasty in their decisions.

"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," Senior told 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 and Jacqueline Wong)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Tue, December 04 2018. 16:17 IST