Sri Lanka

Country has earmarked funds to meet payments due Tuesday but is not out of the woods yet

Faced with low foreign exchange reserves and insufficient funding sources, the sovereign has an IMF bailout in sight

Sovereign's rating under pressure despite plans to salvage economic and financial situation

Sri Lanka's dollar bonds bounced back at the end of last week, following news that the country's central bank is ready to repay debt set to mature this month.

Concerns over Sri Lanka's ability to manage its debt continue to mount, with S&P Global Ratings downgrading the country further.

The Sri Lankan ministry of finance has responded to a Fitch rating downgrade by saying that the country does not ‘accept’ the decision, and has in place a policy framework to tackle its debt obligations and spur economic growth.

Sri Lanka is facing serious fiscal pressure, a result of the dire economic impact of the coronavirus. That led to a downgrade from Moody’s this week, which lowered its rating by two notches. All three major rating agencies have now downgraded the country this year.

Sri Lanka’s dollar bonds were among the worst performing high yield notes in Asia last week, as the country continues to battle the Covid-19 pandemic and refinancing pressures loom.

With emerging markets across the globe facing an overwhelming liquidity squeeze, the IMF said on Thursday that it would “look for solutions that can unlock critical financing” in countries where the unsustainability of debt prevented the fund from lending, potentially increasing funding options for the most stressed of countries.

The primary corporate bond market in Europe threw up another blistering day on Wednesday, with seven issuers on screens by mid-morning, bringing the number of deals so far this week to 18, though bond syndicate desks are hesitant to compare this crisis market with the record-breaking issuance in 2009.

Sri Lanka's sovereign bonds traded wider on Monday morning following the country's presidential election that saw Gotabaya Rajapaksa win with a larger-than-expected majority.

Central bankers from Sri Lanka and Indonesia tell GlobalMarkets why Asian countries are annoyed with the IMF for not ensuring that their countries’ voting shares in the fund match the size and characteristics of their economies and so leave them with less of a voice