Sri Lanka now encounters an unprecedented political and economic crisis in its 74 year democratic administration history since independence without a functioning government after the president fled the country from mass protests this week.

Foreign exchange reserves have been depleted to US$ 1.92 billion and the country is embroiled in a messy public debt default.

Sri Lanka’s turmoil is mainly balance of payments crisis, several eminent economic experts said adding that the pandemic crippled its tourism-dependent economy due to a slump in international travel, weighing on a key source of external revenues.

Meanwhile, rising imports and large debt servicing costs – a consequence of loose fiscal policy and heavy foreign exchange borrowing – caused a rapid decline in international reserves.

This precarious situation was compounded by this year’s surge in oil prices – a key commodity import – and rising US interest rates.

The Central Bank simply did not have the firepower to defend the Sri Lankan rupee against these global pressures and the currency has collapsed by more than 40 percent against the dollar so far this year.

Meanwhile Fitch Ratings has placed Sri Lanka’s local currency rating ‘Under Criteria Observation’ (UCO) following shift in policy to apply + and – modifiers to the agency’s CCC ratings.

Sri Lanka’s long term foreign currency rating has been downgraded to RD but its long term rupee rating is at ‘CCC’.

“The UCO assignment indicates that ratings may change as a direct result of the final criteria,” Fitch said.

“It does not indicate a change in the underlying credit profile, nor does it affect existing Outlooks.

“We will resolve the UCO status within six months officials aid. The outcomes will depend on Fitch’s assessment of the appropriate notching based on the new criteria.”

Introduction of Modifiers at ‘CCC’: The recently published Sovereign Rating Criteria introduces +/- modifiers in the ‘CCC’ category. Sovereigns rated ‘CCC’ could experience a one-notch rating change, potentially migrating from ‘CCC’ to ‘CCC-‘ or ‘CCC+’.

The Secretary General of the British Commonwealth Patricia Scotland has called for a peaceful transition of power in Sri Lanka after public protests forced President Gotabaya Rajapaksa to flee the country.

“The Commonwealth is a community that is underpinned by our shared values,” Scotland said in a statement.

“As one of the oldest democracies in Asia and a founding member of the modern Commonwealth, Sri Lanka has always shown its strong commitment to these tenets, which are cherished and trusted by its people.

She called on all those in positions of leadership to safeguard democratic principles, the rule of law and human rights.”

Sri Lanka is in severe monetary crisis after seven years of money printing and stimulus under flexible inflation targeting/output gap targeting triggered three currency crises in a row.

“It is important that the concerns of the people of Sri Lanka on governance and other issues are addressed and she urged continued dialogue to this end and call on the international community to continue to assist Sri Lanka in this hour of economic need,” Scotland said.

She expressed the hopel that these challenges will be met according to the letter and spirit of the Constitution of Sri Lanka and the values enshrined in the Commonwealth Charter.

The Commonwealth Secretary-General, Patricia Scotland QC, has called on political leaders in Sri Lanka to safeguard democratic governance, the rule of law and human rights, in adherence with the values and principles of the Commonwealth Charter.

The Secretary-General also reiterated the Commonwealth Secretariat’s commitment to support Sri Lanka in protecting and strengthening its institutions and constitutional governance and facilitating economic stability.

She called on all in Sri Lanka to exercise restraint with a view to a peaceful transition of power.

As one of the oldest democracies in Asia and a founding member of the modern Commonwealth, Sri Lanka has always shown its strong commitment to these tenets, which are cherished and trusted by its people.

The Secretary-General has been in contact with Acting President Ranil Wickremesinghe and other leaders of Sri Lanka.

“It is important that the concerns of the people of Sri Lanka on governance and other issues are addressed and she urged continued dialogue to this end and call on the international community to continue to assist Sri Lanka in this hour of economic need.

The Commonwealth Secretariat stands ready to assist Sri Lanka in ensuring constitutional principles, and the values of the Commonwealth Charter, are upheld