Business
Fitch downgrades Sri Lanka’s long-term foreign-currency IDR to ‘CC’
Fitch Ratings has downgraded Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CC’, from ‘CCC’. Fitch typically does not assign Outlooks or apply modifiers for sovereigns with a rating of ‘CCC’ or below.
A number of rating actions are as follows.
The downgrade reflects our view of an increased probability of a default event in coming months in light of Sri Lanka’s worsening external liquidity position, underscored by a drop in foreign-exchange reserves set against high external debt payments and limited financing inflows. The severity of financial stress is illustrated by elevated government-bond yields and downward pressure on the currency.
We have affirmed the Long-Term Local-Currency IDR at ‘CCC’, as authorities have continued access to domestic financing, despite high and still-rising government debt and an elevated debt service burden.
Sri Lanka’s foreign-exchange reserves have declined much faster than we expected at our last review, owing to a combination of a higher import bill and foreign-currency intervention by the Central Bank of Sri Lanka. Foreign exchange reserves have declined by about USD2 billion since August, falling to USD1.6 billion at end-November, equivalent to less than one month of current external payments (CXP). This represents a drop in foreign-currency reserves of about USD 4 billion since end-2020.
We believe it will be difficult for the government to meet its external debt obligations in 2022 and 2023 in the absence of new external financing sources. Obligations include two international sovereign bonds of USD500 million due in January 2022 and USD1 billion due in July 2022. The government also faces foreign-currency debt service payments, including principal and interest, of USD6.9 billion in 2022, equivalent to nearly 430% of official gross international reserves as of November 2021. Cumulative foreign-currency debt service, including interest and principal, amounts to about USD26 billion from 2022 through to 2026.
The timing and availability of external resources is unclear and may not be readily available for debt service. The central bank published a six-month roadmap in October that outlined plans to raise additional external borrowings through a number of channels, including bilateral and multilateral sources, syndicated loans and through the monetisation of under-utilised assets in 1Q22.
A drawdown on the existing currency swap facility with the People’s Bank of China (PBOC) could boost reserves by up to CNY10 billion (USD1.5 billion equivalent). However, even with resources from the swap facility, foreign exchange reserves are likely to remain under pressure, in our view. Additional sources of financing could come from an economic support package from India, which contains a swap facility under the South Asian Association for Regional Cooperation currency framework of USD400 million, a swap facility with the Qatar Central Bank, remittances securitisation and a revolving credit facility with the Bank of China Limited (A/Stable). However, even if all these sources are secured, we believe it will be challenging for the government to maintain sufficient external liquidity to allow for uninterrupted debt servicing in 2022.
Press reports suggest the government may be contemplating IMF financing; an IMF programme would unlock multilateral financing, but we believe the Fund could well suggest restructuring to bring about debt sustainability.
Sri Lanka’s external finances are further challenged by a persistent current account deficit, resulting in downward pressure on the exchange rate. We estimate that the deficit widened to about 5.7% of GDP in 2021 and expect it to remain at about 4.0% in 2022, before falling to 2.1% by 2023. A plunge in remittances, a weak tourism recovery and rising imports have contributed to the wider current account deficit. Travel and tourism, an important economic driver, has been hit hard by the COVID-19 pandemic and the outlook for a recovery remains uncertain given the emergence of new highly transmissible virus variants.
The Sri Lankan rupee/US dollar spot exchange rate depreciated by 7%-8% since end-2020, and the central bank intervened to support the currency, exacerbating the decline in reserves.
Wide fiscal deficits continue to worsen the outlook for debt sustainability. The 2021 fiscal deficit target of 8.9% of GDP was missed by a wide margin, and we expect the government deficit to widen to about 11.5% of GDP in 2022. We believe 2022 revenue targets are optimistic, especially in light of our expectation of weak economic activity. We forecast general government debt to reach about 110% of GDP by 2022, and to keep rising under our baseline, absent major fiscal consolidation.
We also believe it is unlikely that Sri Lanka will meet its 2025 government debt reduction target of about 89% of GDP or narrow the fiscal deficit to 4.8% of GDP. Rising interest payments are a major driver of the widening deficit and the interest/revenue ratio of at about 95.0% is well above the peer median of 11.3%.
Sri Lanka’s economic performance is likely to weaken in 2022, as the challenging external position and exchange-rate pressure will have knock-on effects on economic activity. Foreign currency shortages in 2021 hampered food and fuel imports, and continued external liquidity stress could worsen supply shortages, hurting economic activity. We expect growth to slow to 2.0% in 2022, from an estimated 3.6% in 2021, before recovering to 4.3% in 2023 partly due to base effects and a gradual easing of domestic pressures, although downside risks to our forecasts remain. Sri Lanka’s economy was expanding at a modest pace prior to the pandemic, which led real GDP to contract by 3.6% in 2020.
ESG – Governance: Sri Lanka has an ESG Relevance Score of ‘5’ for Political Stability and Rights. This reflects the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. Sri Lanka has a medium WBGI ranking at the 47th percentile, reflecting a recent record of peaceful political transitions and a moderate level of rights for participation in the political process. As Sri Lanka has a percentile rank below 50 for the governance indicator, this has a negative impact on the credit profile.
Business
Teejay reforesting continues strong momentum with WNPS PLANT
Teejay Lanka PLC, in collaboration with the Wildlife and Nature Protection Society (WNPS) through its PLANT initiative, continues to drive a significant ecological restoration project along the Maskeli Oya in Sri Lanka. This effort, part of Teejay’s ‘Abhivarah 2030’ sustainability road map, focuses on reforesting degraded areas to create a 9km forest corridor, restoring the riparian ecosystem and enhancing biodiversity. With 2,650 native trees already planted, the project also generates valuable carbon credits while addressing environmental challenges through community-driven efforts and scientific monitoring, highlighting the role of the private sector in advancing sustainable land management practices.
Teams from Teejay Lanka PLC and the WNPS PLANT teams recently engaged in an inspection and replanting visit to the Gouravilla Estate of the Horana Plantations Group, who are part of Hayleys Plantations. The teams added 300 new plants to the location that day and reviewed the progress of the efforts.
“The overarching goal of this project by WNPS PLANT (www.plantsl.org) in partnership with Horana Plantations, is to establish a nine-km forest corridor along the Maskeli Oya, enhancing habitat connectivity across the estate lands. Five estates are covered within this corridor, including the Gouravilla segment, and the banks of the Oya will be reforested with native trees sourced from selected nurseries,” a news release connected with the initiative said.
“The reforestation is community-driven, with community people employed to carry out planting and maintenance activities. Despite the challenges posed by extreme weather conditions and pest attacks, over 2,650 trees have already been planted in the Gouravilla segment alone in less than a year. To protect young saplings from herbivory, plant guards have been installed, and regular watering during dry spells ensures their survival. Our field team conducts routine monitoring to assess the health and progress of the planted trees, ensuring that the reforestation efforts are on track.”
The release explained this project is dedicated to restoring the riparian ecosystem along the Maskeli Oya, an important tributary of the Kelani River, originating from the Peak Wilderness Nature Reserve. The initiative aims to improve the environmental conditions supporting the health of Kelani valley basin which is a key focus area for Teejay. These objectives are achieved by improving the riparian forest ecosystem by planting native montane forest species suited to the unique geoclimatic conditions of the Upcot Valley. A rapid biodiversity assessment across the entire project site revealed the presence of 70 flowering plant species and 99 faunal species, encompassing mammals, birds, reptiles, amphibians, and more.
The flora selected for the restoration are all native species, carefully chosen to ensure ecological compatibility and success. Among these are species such as Gal Weralu (Elaeocarpus subvillosus), Thel Keena (Calophyllum tomentosum), Thiththa Weralu (Elaeocarpus montanus), Kenda (Macaranga indica), Kudu Dawula (Neolitsea fuscata).
“The Gouravilla segment sponsored by Teejay Lanka PLC, is a vital area for the preservation of this region’s unique biodiversity. This broader site is home to an array of wildlife, including records of Day geckos (Cnemaspis samanalensis and Cnemaspis upendrai) from outside of their known range, two endemic fresh water fish species including one Critically Endangered (Devario monticola) and one a Near Threatened (Garra ceylonensis)” the release said.
“The record of Devario monticola in Maskeli Oya is very important because it was recorded only from the Agra Oya river basin in the country. The record of the Spotless grass yellow is another important finding of this study as it has not been recorded around Maskeliya previously. These underscore the importance of this project in protecting the island’s rich biodiversity through the restoration of the degraded ecosystems along the Maskeli Oya”.
It added that progress is not easy as these plants are majorly threatened by human activity including the cutting of new saplings along with the high grass, and due to herbivore presence. Montane plants are also extremely slow growing and various added measures will be needed to complement these efforts.
This two-year project is a significant element of Teejay’s ‘Abhivarah 2030’ sustainability road map and generates valuable carbon credits, while helping restore one of the country’s most scenic natural habitats to its pristine state. Teejay is also focused on initiatives to improve the environment in and around the Kelani River and its related ecosystems, and this project is an extension of that commitment.
“This project is not merely about planting trees; it is a scientifically driven ecological restoration effort. By carefully monitoring and nurturing these plants, the project aims to restore and expand the forested areas, creating a thriving habitat that supports a diverse array of species. This initiative by the WNPS and PLANT teams and their partners exemplifies the role that Private Sector can play to reversing ecological degradation and promote sustainable land management practices in Sri Lanka,” the release concluded.
Business
Eastern region poised for tourism boom, says expert Pasan Wijewardana
The Eastern region of Sri Lanka is ripe for a tourism renaissance, according to Pasan Wijewardana, Cluster Director of Sales and Marketing for Sun Siyam Pasikudah and Sun Siyam Iru Fushi. In a brief interview with the Sunday Island, Wijewardana emphasized the vast untapped potential of the East, highlighting its stunning beaches, rich cultural heritage, and diverse biodiversity.
While areas like the South and Hill Country have long dominated the tourism spotlight, Wijewardana believes that with increased investment and awareness, the East can emerge as a premier destination for both local and international travellers. “The East is not just a seasonal getaway; it offers year-round attractions that are often overlooked,” he explained.
The region’s pristine beaches, coupled with its historical sites and cultural experiences, provide a compelling case for extended travel options. Wijewardana noted that the East can be seamlessly integrated into Sri Lanka’s broader tourism strategy, particularly as a complement to the Cultural Triangle. “By promoting round trips that include cultural experiences alongside beach relaxation, we can diversify the overall tourism offering,” he stated.
The global tourism landscape is shifting towards more personalized, experiential, and sustainable travel options, especially in a post-pandemic world. Travellers are increasingly seeking unique experiences that connect them with nature and local culture. In this evolving context, Wijewardana sees Sri Lanka’s diversity—from heritage sites to nature reserves—as a key strength that can be leveraged to attract a wider audience.
“Destinations that can offer safety, flexibility, and authenticity will stand out,” he emphasized, pointing to the resilience of Sri Lanka’s tourism industry amid recent challenges. The country is gradually recovering and making strides to attract a variety of travellers, including eco-tourists, wellness seekers, and experiential travelers.
Wijewardana also highlighted the importance of positioning Sri Lanka as a safe and unique destination. “We can learn from our neighbors, like the Maldives, which has successfully carved out a niche in luxury tourism by offering exclusive, personalized experiences,” he remarked. “Sri Lanka has its own rich offerings that can appeal to discerning travelers, particularly if we focus on luxury experiences that integrate wellness and cultural immersion.”
The potential for multi-destination packages combining Sri Lanka and the Maldives presents an exciting opportunity for growth. “Imagine travellers enjoying a cultural adventure in Sri Lanka, followed by relaxation in the Maldives,” Wijewardana suggested. “This holistic travel experience could attract long-haul tourists looking for something beyond the ordinary.”
Sun Siyam Pasikudah aims to be at the forefront of this tourism shift, offering guests a tranquil, immersive experience that blends luxury with local culture. “Our property not only supports the local economy but also focuses on sustainable practices that preserve the environment,” he said. “As more tourists discover the beauty of the Eastern region, we hope to see it thrive, becoming a key player in Sri Lanka’s tourism landscape.”
With a career spanning various regions and prestigious properties, Wijewardana is passionate about creating memorable guest experiences and fostering partnerships that enhance tourism. “My aspiration is to showcase the best of Sri Lanka and the Maldives to the world,” he concluded. “By promoting our unique offerings and committing to sustainable tourism, we can elevate Sri Lanka’s tourism industry to its full potential.”
As Sri Lanka continues to recover and reposition itself in the global tourism market, experts like Wijewardana are optimistic about the Eastern region’s bright future as a leading travel destination.
Business
Aviyana becomes main sponsor of Sri Lanka Trade Fair Dubai 2024
Aviyana, Sri Lanka’s first 7-star hotel, is the main sponsor for the Sri Lanka Trade Fair Dubai 2024, set for November 2-3 at the Crown Plaza in Dubai. The event aims to connect Sri Lankan exporters with Gulf buyers, showcasing products across industries like gems, spices, tea, and textiles. Aviyana’s sponsorship reflects its commitment to promoting both luxury tourism and Sri Lanka’s broader business potential. The hotel, known for its luxury and world-class service, sees this collaboration as part of its efforts to position Sri Lanka as a hub for international trade and tourism.
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