The rating agency Fitch has downgraded the Long-Term Foreign-Currency Issuer Default Rating (IDR) of Sri Lanka from Stable to Negative directly citing new Sri Lankan president Gotabaya Rajapaksa’s actions.
An IDR refers to a country’s likelihood to default. In Sri Lanka’s example, the island in the next 3 years owes $19 billion in contrast to a reserve of foreign currency totalling only $7.5 billion, leading to growing nervousness amongst lenders and rating agencies. Rajapaksa's actions since coming to office have added to Sri Lanka’s inability to repay its debt.
Fitch stated the announcement of "sweeping tax cuts" will lead to an upward trajectory of the gross general government debt, which already stands at 85% of GDP. "We believe the departure from the previous revenue-based fiscal consolidation path has created policy uncertainty and increased external financing risk for the sovereign, particularly given the large external debt repayments due in 2020 and beyond," it added.
Read more from Fitch here.