Sri Lanka remains willing and able to meet all its debt obligations as it has done in the past, the government said on Saturday, a day after Fitch downgraded the country's sovereign credit rating to "CCC". Fitch Ratings said on Friday it was downgrading Sri Lanka from "B-" to "CCC", barely above default, after the government's 2021 budget showed too steep revenue projections, following earlier tax cuts and a higher deficit for 2021 than 2020.
The ratings agency said the budget was lacking a credible fiscal consolidation strategy and provides only limited details on the potential revenue impact of some of the measures announced, raising uncertainty about the government's planned reduction in government debt and budget deficit. "The Government has repeatedly expressed its ability and willingness to meet all its debt obligations falling due in the period ahead," the finance ministry said in a statement.
The government wishes to reaffirm to foreign investors that have put faith in Sri Lanka continuously over the past several years that the country remains willing and able to meet its debt obligations, as it has done impeccably in the past, the statement said. It said the assessment had ignored several key proposals presented in the 2021 Budget regarding deficit financing in the period ahead.
"As indicated in the Budget 2021, the government has adopted a novel approach in relation to foreign financing while enhancing the effectiveness of already secured financing channels, aimed at reducing the share of foreign financing of the budget deficit over the medium term," it said. The government said that Sri Lanka will engage with all investment and development partners and implement necessary measures to build up reserves through non-debt creating inflows.
"Investors are invited to approach the Sri Lankan policy authorities at the highest levels who are dedicated to facilitate any one-on-one or roadshow discussions, without being dissuaded by such baseless rating action," it said. The "CCC" rating means Fitch considers default to be "a real possibility", according to its ratings framework.
Sri Lanka, which relies heavily on tourism and garment exports for foreign exchange reserves, has been hit hard by the COVID-19 pandemic, which has undercut consumer demand and severely affected global travel this year.