By: Staff Writer

September 26, Colombo (LNW): Fitch Ratings has confirmed Sri Lanka’s ‘Restricted Default’ (RD) rating following its sovereign debt default.

Sri Lanka’s new government, formed after the September 2024 presidential election, has raised concerns about potential delays in foreign debt restructuring and the IMF program.

However, progress has been made, with recent agreements on debt restructuring with bondholders and the China Development Bank.

Sri Lanka’s local-currency debt restructuring was completed in 2023, upgrading its local rating to ‘CCC-’. Despite this, Sri Lanka’s debt remains very high, with an expected slow decline in the debt-to-GDP ratio over the next few years.

Positively, the country’s foreign-currency reserves have improved due to increased tourism, remittances, and the halt of debt payments.

However, achieving long-term debt stability will still be a challenge, as revenue collection and economic growth remain priorities for the government. Inflation is under control, and the banking sector is showing signs of stabilizing after the economic stress caused by the debt crisis.

Sri Lanka’s political stability and governance are medium, with concerns over corruption and policy uncertainty affecting the country’s ratings.

Fitch believes the result add uncertainty to the country’s policy direction and could lead to a delay in the completion of the foreign-currency debt restructuring or renegotiation of the IMF programme.

“The upcoming 2025 budget, to be adopted by November 2024, could offer clarity on the new government’s policies.”

Local-Currency Debt Exchange Complete: Sri Lanka completed the local-currency portion of its domestic debt optimisation in September 2023.

This followed the exchange of the Central Bank of Sri Lanka’s treasury bills and provisional advance into new treasury bonds and bills. This led us to upgrade the Local-Currency IDR to ‘CCC-‘. The rating is being affirmed at this level.

The IMF forecasts Sri Lanka’s gross general government debt/GDP ratio to decline only gradually to about 103% of GDP by 2028, from about 116% in 2022. This forecast incorporates a local- and foreign-currency debt restructuring scenario. However, this level of debt would still be elevated, even after the restructuring.

Foreign-currency (FX) reserves have been improving, with gross FX reserves reaching around USD6.0 billion in August 2024, against USD4.4 billion at end-2023, partly due to the suspension of external debt service.

Other supporting factors include an uptick in tourism and overseas worker remittances. The current account was in a surplus in 2023 and we expect a surplus in 2024. The sovereign, however, remains dependent on official financing sources without access to international capital markets.

By: Staff Writer

September 26, Colombo (LNW): President Anura Kumara Dissanayake says that his government firmly believes that Sri Lanka’s economy needs to be stabilized before making structural changes to all sectors.

We plan to begin negotiations with the International Monetary Fund immediately and proceed with activities related to the extended credit facility,” Dissanayake said.

He further said that the debt restructuring process will continue, and steps will be taken to bring about debt relief as soon as possible through discussions with relevant parties.

However Moody’s, a global credit rating agency, has stated that Sri Lanka’s credit risks may remain high despite new President Anura Kumara Dissanyakes’s pledges.

“Before implementing long-term and medium-term plans for that purpose, we will work to create a short-term stability through the immediate economic measures that are required,” he said, delivering his inaugural address to the nation on Wednesday (25).

President Dissanayake says all steps needed for the expected change depend on building stability and trust in the economy. Therefore, discussions with the International Monetary Fund (IMF) will resume soon and the process of the Extended Fund Facility (EFF) will be advanced, he said.

“The change we seek involves many steps that will take time. However, achieving stability and confidence in the current economy is crucial.”

“Moody’s, a global credit rating agency, has stated that Sri Lanka’s credit risks may remain high despite new President Anura Kumara Dissanayake’s promises to lower taxes and adjust the country’s International Monetary Fund (IMF) bailout agreement.

According to Moody’s, while significant changes to the reform agenda or macroeconomic policies—such as ongoing debt restructuring and IMF-backed structural adjustments—are unlikely, there could be shifts in policy priorities.

These shifts, particularly related to fiscal consolidation, may keep credit risks elevated for an extended period.

Since Sri Lanka’s 2022 default, the country has implemented several measures to regain fiscal stability, including increasing VAT and corporate taxes and reducing personal tax exemptions. Moody’s, which rates Sri Lanka at Ca, just above default, noted that these actions have raised government revenues to over 11% of GDP in 2023, up from 8.3% in 2021, and reduced the fiscal deficit to 8.3% of GDP from 11.7%.

However, despite these improvements, the fiscal deficit remains large, and debt affordability is expected to stay weak. Interest payments are projected to consume 40%-50% of government revenues over the next few years, which is still among the weakest compared to other sovereign nations rated by Moody’s, though it marks progress from the over 70% level in 2021.

By: Staff Writer

September 26, Colombo (LNW): Research Intelligence Unit (RIUNIT), a leading international research and consulting firm, yesterday announced the signing of an exclusivity agreement for a prime plot allocation within Port City Colombo.

This marks a pivotal second step in RIUNIT’s ambitious real estate venture, “Asia’s Real Estate Opportunity of the Century.”

The agreement was signed on 24 September by Port City Colombo General Manager of Investment Promotion and Marketing Zheng Tian reinforcing RIUNIT’s ongoing commitment to driving economic growth and innovation in the region.

This milestone follows the successful launch event held on 16 July, where RIUNIT unveiled its comprehensive initiative designed to empower local developers and investors to engage with the transformative Port City project.

The signing ceremony underscores RIUNIT’s role as a key player in opening new avenues for Sri Lankan developers and small investors within the Port City development. By securing this plot, RIUNIT strengthens its ability to create accessible entry points for local participation, offering a unique opportunity to invest in one of Asia’s most promising real estate markets.

Speaking on the occasion RIUNIT CEO Roshan Madawela stated: “This agreement represents a critical step towards our vision of involving regional developers in Port City Colombo. Our initiative is geared towards facilitating sustainable investments for Sri Lanka ensuring they can take advantage of the vast potential of this ground-breaking project.”

This agreement builds on the success of RIUNIT’s launch event, which attracted industry leaders, visionaries, and experts to explore the unparalleled opportunities within Port City.

The initiative, titled “Asia’s Real Estate Opportunity of the Century,” offers detailed insights into market trends, investment strategies, and regulatory frameworks, making it an essential resource for investors.

“The Port City represents a strictly regulated and zoned space that respects the aesthetic needs of humans while also providing all supporting commercial and recreational amenities at close hand. The lifestyle opportunities that will be offered here are unparalleled in Sri Lanka and perhaps the world over,” said RIUNIT Member of Advisory Board Architect Nilesh De Silva.

With this exclusivity agreement now signed, RIUNIT said it is well-positioned to advance its goal of fostering local involvement in Port City’s growth. RIUNIT added that it remains committed to providing in-depth research, analysis, and insights to guide industry professionals and investors as they navigate this evolving landscape.

By: Isuru Parakrama

September 26, Colombo (LNW): Global ratings agency Fitch has projected that Sri Lanka’s economic growth will rebound to 3.9 per cent in 2024, with an average growth rate of 3.6 per cent expected for the years 2025-2026.

This recovery follows a challenging period of economic contraction in 2023, with the economy showing signs of stabilisation and improvement.

According to Fitch, Sri Lanka’s real GDP growth, adjusted for seasonal fluctuations, rose by 5.0 per cent year-on-year in the first half of 2024.

This marks a significant recovery from the 7 per cent contraction experienced during the same period in 2023.

Industrial growth was a key driver of this resurgence, expanding by 11.3 per cent following an 18 per cent decline in the first half of 2023.

Similarly, the services sector saw a 2.7 per cent recovery after a contraction the previous year, highlighting the broader stabilisation of the economy.

Fitch anticipates further easing of monetary policy over the next two years, as the Central Bank of Sri Lanka has already lowered the standing deposit facility rate by a cumulative 725 basis points since June 2023.

This policy shift is expected to continue in light of subdued inflationary pressures. Inflation stood at 0.6 per cent in August 2024, marking over a year of single-digit inflation, a significant improvement from the 67 per cent inflation rate recorded in September 2022.

Another positive development has been the improvement in Sri Lanka’s foreign-currency reserves, which reached around US$ 6 billion in August 2024, up from US$ 4.4 billion at the end of 2023. T

his increase is attributed to a suspension of external debt service, along with higher tourism revenues and overseas worker remittances.

Fitch also noted that the country’s current account remained in surplus in 2023 and is expected to continue this trend into 2024.

Despite these positive indicators, Sri Lanka remains in default on its foreign currency obligations, with restructuring negotiations ongoing with private external creditors.

Fitch has affirmed Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘RD’ (Restricted Default) and its Long-Term Local-Currency IDR at ‘CCC-’.

The recent announcement of a preliminary debt restructuring agreement with foreign bondholders and the China Development Bank suggests progress is being made in resolving the country’s external debt crisis.

The restructuring follows the suspension of debt servicing announced in April 2022, which impacted several categories of external debt, including international bonds and foreign currency-denominated loans.

Sri Lanka’s Long-Term Foreign-Currency IDR has been rated ‘RD’ since May 2022, following the expiry of a grace period.

The IMF has forecast Sri Lanka’s gross general government debt-to-GDP ratio to gradually decline to around 103 per cent by 2028, down from 116 per cent in 2022.

However, even with ongoing debt restructuring efforts, Sri Lanka’s debt levels are expected to remain elevated.