Govt. snubs rating downgrade

•  Points to six-month road map for clues, though nothing concrete achieved thus far

The Central Bank in a statement issued on behalf the government refuted the sovereign rating downgrade by Fitch Ratings on multiple counts calling the action was, “reckless”, and said the claims of an increased probability of a debt default in the coming months are “unfounded”. 
The Central Bank disputed such claims in the strongest possible manner, as they have repeatedly done every time a rating agency acted in contrary to their beliefs and expectations, claiming that Fitch had failed to take into consideration the recent developments that have taken place in the external sector and in the fiscal side where the government has put forth a credible two plans in their six-month road map and the budget for 2022 for easing external liquidity pressure and to narrow fiscal deficit.

Fitch indeed made reference to the two documents but was unconvinced of the credibility of both—one, due to nothing concrete has happened thus far since three months into the launch of the road map; second, such stop-gap measures are unlikely to help government to maintain sufficient external liquidity to allow for uninterrupted debt servicing in 2022; and third, the unrealistic revenue and deficit targets set out in the budget for next year. The Central Bank also charged the rating agency saying they had, “completely ignored the standby SWAP facility with the People’s Bank of China of around US$ 1.5 billion,” of which the withdrawal is imminent. 
But the rating agency did take that into consideration in their rating review but concluded even with that the foreign currency reserves would remain under pressure. 
The Central Bank said the fact that Fitch did not wait until December 31, which the Central Bank called as the, “first test date”, of the progress made in its six-month road map reflects nothing but their hastiness and recklessness in downgrading.  “Fitch Ratings, in a rather hasty move, downgraded Sri Lanka’s international sovereign rating on 17 December 2021, demonstrating its failure to recognise the positive developments taking place in Sri Lanka, in an environment in which the entire world is grappling with multiple waves of the COVID-19 pandemic,” the Central Bank said in response to the downgrade.  “The sense of urgency on the part of an internationally recognised rating agency to downgrade Sri Lanka is inconceivable, particularly considering the fact that Fitch was being constantly updated by Sri Lankan authorities on the latest developments in all sectors of the economy and imminent foreign exchange inflows,” they added. 
The Central Bank said they are confident to end the year with an external reserves buffer of US$ 3.0 billion but avoided every time to say if that will be with or without the Yuan swap facility.  Flaunting the limited progress made in the economy in areas of Purchasing Managers’ Index for November, record breaking November exports, growth in tourism and the rising prospects for remittance with the increasing number of departures, the Central Bank asked the foreign investors who make up their minds based on rating actions to not to be swayed by the Fitch’s actions. 
And the Central Bank also called all the stakeholders to join with them to ride through the current turbulent times in the economy. 
“Therefore, all stakeholders of the economy, including international investment partners, are requested not to be dissuaded by this unjustified rating action, but instead, work with Sri Lanka to surf the turbulent tides, which are expected to settle in the next few days,” they invited.   
However, Sri Lanka’s economy is currently at its worst form with prices of food rising at nearly 20 percent; shortages in daily essentials such as cooking gas, milk powder and others have become a common occurrence with poverty, hunger and unemployment raising their ugly heads. Further, the people’s economic freedoms have been clamped down by way of import controls for nearly two years in the pretense of rebuilding domestic entrepreneurial base, but instead is breeding a segment of crony capitalists and the people are forced to foot a heavy bill at grocery stores for such policies