S&P Global Ratings on Monday affirmed its long-term foreign and local currency sovereign credit ratings on Sri Lanka at CCC-plus.
It also affirmed short-term foreign and local currency credit ratings at C. The transfer and convertibility assessment is CCC-plus. The outlook remains stable, said S&P, reflecting that risks to Sri Lanka are relatively balanced over the next 12 months.
The threat of external deterioration is partially offset by the country's access to official funding and accommodative macroeconomic policies which are likely to boost domestic demand recovery.
The ratings reflect S&P's assessment that risks to debt-servicing capacity remain elevated and the government's access to external financing is increasingly dependent on official support and favourable economic and financial conditions.
The country's relatively modest income levels, weak external profile, sizable fiscal deficits, heavy government indebtedness and hefty interest payment burdens significantly constrain the ratings.
While the economy is likely to expand this year, said S&P, uncertainty over the Covid-19 pandemic fallout in Sri Lanka and the surrounding region poses significant headwinds to economic activity and recovery in sectors such as tourism.
"While expansionary macroeconomic policies will provide relief to the economy, they risk further weakening the government's fiscal position and worsening the risks associated with the government's already high debt burden," it said.
S&P forecast the economy will expand by 3.7 per cent in real terms in 2021 following the 3.6 per cent contraction in 2020. With better vaccination progress in 2022, it expects real GDP growth to accelerate to 4 per cent and average 4.2 per cent from 2022-24.
This will bring per capita income to around 3,900 dollars in 2021, translating into real GDP per capita growth of 2 per cent on a 10-year weighted-average basis.
Although this growth is in line with peers at a similar income level, it is substantially below Sri Lanka's potential, said S&P.
( With inputs from ANI )
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