The island nation has officially ended debt default as Hong Kong-based Fitch Ratings decided to upgrade Sri Lanka’s credit rating, the finance ministry said here on Saturday.
Fitch upgraded Sri Lanka’s long-term credit default rating to CCC+ from CCC+ on Friday as it said “the risk of another default on local currency debt has been mitigated by the restructuring of international sovereign bonds and an improved outlook for macroeconomic indicators.”
Mahinda Siriwardena, a top finance ministry official, said in a statement: “December 20 marks a major milestone in our economic recovery process as Sri Lanka officially emerges from sovereign default.”
Sri Lanka was plunged into economic crisis when the island nation declared sovereign default in mid-April 2022, its first since independence from Britain in 1948. Sri Lanka was evacuated due to an almost civil war-like situation and months of public protests. The then President Gotabaya Rajapaksa.
Ranil Wickremesinghe, who took over the post of president, immediately took over the post of president after starting negotiations with the International Monetary Fund (IMF). His government received a bailout a year later in March 2023.
Siriwardena said the crisis was man-made and could have been averted if early warnings had been heeded in early engagement with the IMF.
“Although the macroeconomic results have been really satisfactory and the debt restructuring process has resulted in this rating upgrade, people still feel the pain of the crisis and difficult remedial measures.” He was probably referring to the time of the unprecedented foreign exchange crisis that led to shortages of essential commodities and long queues for fuel and cooking gas while the island faced more than 10 hours of power cuts in 2022.
There is no room for repeating policy mistakes, insisting that collapse is quick but recovery is painful.
“This is indeed a historic moment and a time to celebrate but it is a moment that must never be repeated.” Siriwardena was one of the two top officials, apart from central bank governor Nandlal Weerasinghe, who oversaw the recovery process starting in 2022.
There have been three presidents and three finance ministers since the country fell into crisis.
Earlier on Wednesday, President Anura Kumara Dissanayake announced that Sri Lanka had secured flexibility with the IMF on its rigid state revenue tax system, which was part of his election promise.
Dissanayake, who is also the finance minister, said in Parliament that his government has succeeded in raising the funds while speaking about the agreement reached with the International Monetary Fund (IMF) during the third review of the 2.9 billion USD Expanded Fund Facility (EFF). Tax Threshold.
“We have been able to raise the tax threshold for pay-as-you-earn (PAYE tax) so that high earners pay more and low earners pay less,” Dissanayake said, adding that there would be other VAT exemptions and withholding taxes. Interest income for retirees.
Dissanayake’s government recently concluded the third review of the IMF bailout and is awaiting the fourth installment of the nearly USD 3 billion facility.
Sri Lanka announced on November 26 that it had approved a US$14.2 billion debt restructuring agreement, mandated by the IMF to maintain debt sustainability through the exchange of new bonds for existing bonds.
A week earlier, the National People’s Power (NPP) government won IMF approval for a staff-level agreement to secure the fourth tranche of a nearly USD 3 billion bailout package, which President Dissanayake supported despite his pre-presidential election rhetoric. To renegotiate the global lender to water down the difficult situation.
The NPP heavily criticized utility charges and high taxes based on cost recovery, which came conditional on the bailout.
The debt restructuring agreement was reached in September, a few days before the presidential election, in the final week of then-President Ranil Wickremesinghe’s administration.
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