Sri Lanka’s sovereign default process has begun, says rating agency

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Sri Lanka is about to default on its debts, two of the world’s largest credit rating agencies have warned, BBC reported.

Fitch Ratings lowered its assessment of the South Asian nation, saying “a sovereign default process has begun”.

S&P Global Ratings made a similar announcement and said that a default is now a “virtual certainty”.

This week, Sri Lanka said it will temporarily default on its foreign debts as it faces its worst economic crisis in more than 70 years.

Meanwhile, faced with mass protests over major power cuts and the soaring cost of food and fuel, officials have urged Sri Lankans working abroad to send money home.

The new governor of the country’s central bank appealed for donations in sterling, US dollars and euros on Wednesday.

He said the money “will be utilised only for the purpose of importation of essentials such as food, fuel and medicine”, BBC reported.

On Monday, Sri Lanka is due to make $78m of interest payments on its international sovereign bonds.

If the payment is not made within a 30-day grace period it would mark the country’s first default on its foreign debt since independence from the UK in 1948.

Fitch’s latest rating puts Sri Lanka at “near default” and indicated that its “payment capacity is irrevocably impaired”.

“We will downgrade the [rating] once a payment on an issuance is missed and the grace period has expired,” Fitch said.

S&P also downgraded Sri Lanka “to reflect the virtual certainty of a default on some affected obligations”.

The ratings agency said it was waiting for more details on Sri Lanka’s debt restructuring plan, or confirmation that its government had failed to pay its creditors.

“We expect the government to miss paying these coupons,” S&P said in a note. A coupon is the interest payment due on a bond, BBC reported.

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