Colombo: Credit rating agencies Fitch and Standard & Poor’s downgraded Sri Lanka on Tuesday, citing refinancing risks and an uncertain policy outlook, after President Maithripala Sirisena’s sacking of his prime minister in October triggered a political crisis.

A bitter row over the sacking of former prime minister Ranil Wickremesinghe in October and the competing influences of China and India have shattered the island’s fragile ruling coalition.

Mahinda Rajapaksa, who replaced Ranil Wickremesinghe as prime minister, lacks a parliamentary majority and has been prevented by a court from holding office, delaying the country’s 2019 budget and leading to violent scenes in the island’s parliament.

Fitch and S&P cut their ratings by one notch to B from B+, following the third major rating agency, Moody’s, that downgraded the island nation on November 20.

Both firms cited risks that Sri Lanka could struggle to refinance its debts. The country has a “heavy" external debt repayment schedule between 2019 and 2022, Fitch said.

“Investor confidence has been undermined, as evident from large outflows from the local bond market and a depreciating exchange rate," Fitch said in a statement.

The rating agency said that plans to raise funds through bilateral and commercial borrowing, or through the exercise of foreign currency swaps, could be challenging in the current political climate, though it rated its outlook at “stable", meaning it saw a longer-term recovery for the economy, that was badly hit by weather-related disruptions in 2016 and 2017.

S&P, meanwhile, said there has been a “significant erosion" in the political situation in Sri Lanka which could affect its ability to refinance its debts.

“It is a mess at the moment," an official in the country’s finance ministry told Reuters, adding the downgrade would raise borrowing costs by a few percent.

“We have to come out of this dragging political crisis. The borrowing cost is anyway going to rise with this," said the official, who declined to be named.

The central bank said both Fitch and Moody’s have been too hasty in their decisions.

“We are of the view that actions by both rating agencies are too hasty as their decisions are based on short-term political uncertainties. Such uncertainties could be very short-lived only for couple of weeks," Central Bank Senior Deputy Governor Nandalal Weerasinghe told Reuters before S&P became the latest rating agency to downgrade.

The rupee currency has weakened nearly 17% so far this year, while yields on Sri Lanka’s dollar bonds due in 2022 have risen by more than a percentage point to 8.24% since the crisis began.

Also read: What Sri Lanka’s political turmoil means for India

Also read: Sri Lankan political turmoil linked to India-China investment rivalry

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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