Any potential improvement in Sri Lanka’s credit profile will depend on how closely the government complies with conditions laid out by the International Monetary Fund (IMF) said Fitch Ratings.
Noting that Sri Lanka was one of five countries that Fitch took negative rating action against in the two years leading up to IMF loads – the others being Iraq, Kenya, Suriname and Tunisia – the ratings agency added that Sri Lanka “ran down foreign-exchange reserves at unsustainable rates trying to resist currency depreciation in a global environment of US dollar strength”.
“IMF loans should alleviate external liquidity pressures and reduce the risk of sovereign default, particularly where IMF assistance has been supported by other multilateral assistance or has improved access to global bond markets,” it added.
“However, all of these countries still have either large current-account or fiscal deficits, or both. Reducing these vulnerabilities will be key to stabilising or improving their ratings.”
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