SL likely to see minimum one notch upgrade in sovereign credit ratings

Sri Lanka is likely to see a minimum one-notch upgrade in sovereign credit ratings to triple C (CCC) in two to three weeks upon completion of the external debt restructuring process, according to Sri Lanka Banks' Association Chairman Bingumal Thewarathanthri.

This will allow traders and bankers would experience a turnaround in accessing foreign capital and trade financing facilities. “You will see more goods coming into the country, there will be pressure on the Rupee at that time.

Initially, we expect a stronger Rupee when debt restructuring is over, that is something to be experienced for a couple of months, but immediately you will see import bills going up. Overall, for the business community, it will be a big plus, because 60 percent of Sri Lanka’s GDP is in the service sector,” he elaborated.
After the country’s selective default on external debt, the transaction costs shot up with higher weighted average cost of capital (WACC) and exchange commission structures (ECS), forcing Sri Lankan entities towards a cash cycle.

Meanwhile, Thewarathanthri also expects banks to regain access to global funds following the expected upgrade in the sovereign credit rating. This would be critical for bankers in the wake of the single-borrower exposure limit coming into force.
Although the government will be able to access global capital markets within 18 months after the initial rating upgrade, he noted that it would largely depend on IMF guidelines.

“Generally, we see an 18-month average for a market to get a B minus, and can Sri Lanka get a B minus in 18 months? I wouldn’t know, but you can access the market, if you want to. Of course, we have Gross Financial Needs targets and IMF guidelines and all that,” he said.