Sri Lanka: Central Bank Says Rating Agencies’ Downgrading ‘Unwarranted’

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The Central Bank of Sri Lanka (CBSL) says that the decisions by Fitch Ratings and Standard and Poor’s (S&P Global Ratings) to downgrade Sri Lanka’s Long-Term Rating from ‘B+’ (Stable) to ‘B’ (Stable) are based on “uncorroborated facts” on the country’s macroeconomic fundamentals.

The credit rating agencies 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.

However, the central bank issuing a statement today said that in spite of the recent developments in the country’s political sphere, an array of measures have been taken by the CBSL and the Government to minimize any potential impact from the recent political developments on the economy, especially with regard to external financing requirements and debt payment obligations.

“It is noteworthy that there has been a favourable adjustment in the exchange rate during recent days supported by rising foreign currency inflows which would be further enhanced in the upcoming holiday and new year season.”

The CBSL said it needs to be further reiterated that Sri Lanka’s banking and financial sector remains resilient to both domestic and external vulnerabilities.

Even though the operating environment is challenging, the banking sector is subject to a stringent supervisory and regulatory framework, the statement said. The commitment of the banking sector to adhere to higher levels of capital and liquidity requirements demonstrates its resilience in facing these challenges, thereby creating a stable outlook for the banking sector.

“Given these parameters, the CBSL is of the view that the recent rating actions by Fitch Ratings and S&P Global Ratings are unwarranted,” it said.

“Such an action only on the premise of heightened political uncertainty, with no evidence of slippages in macroeconomic policies or fundamentals, cannot be justified.”

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