Standard & Poor's Global Ratings said on Tuesday that it lowered Sri Lanka’s sovereign credit rating to ‘B’ from ‘B+’.
S&P’s action follows a downgrade of Sri Lanka by Fitch Ratings earlier today (04), citing refinancing risks and an uncertain policy outlook.
Moody's too downgraded Sri Lanka ratings late last month. As such, all three major rating agencies have downgraded Sri Lanka since the unconstitutional coup on October 26.
Credit rating agencies, in essence, rate a country on the strength of its economy. More specifically, they rate governments on how likely they are to pay back their debt.
A rating affects how much it costs governments to borrow money in the international financial markets. In theory, a high credit rating means a lower interest rate (and vice versa).
Ratings can be a warning system for potential investors, and make it more expensive for poorly-rated nations like Sri Lanka to borrow money.
The former government of ousted prime minister Ranil Wickremesinghe said that they expected to borrow LKR 1,944 billion from local and foreign sources for its debt servicing, including the financing of the budget deficit in 2019, before it was toppled in a coup.
The recent ad hoc, populist tax concessions introduced by former Finance Minister Mahinda Rajapaksa have raised serious concerns among financial analysts as more tax cuts mean more borrowing to fund expenses such as public sector wages, pensions and samurdhi payments.