Sri Lanka is poised to witness a potential boost in its sovereign credit ratings, with expectations of a minimum one-notch upgrade to triple C (CCC) within the next two to three weeks, following the completion of its external debt restructuring process. This optimistic projection comes from Bingumal Thewarathanthri, Chairman of the Sri Lanka Banks' Association.
Such an upgrade could herald positive outcomes for traders and bankers, facilitating improved access to foreign capital and trade financing facilities. Thewarathanthri highlighted that this development would likely result in increased imports, potentially putting pressure on the country's currency, the Rupee.
"With the completion of debt restructuring, we anticipate a temporary strengthening of the Rupee for a couple of months, followed by a surge in import bills," Thewarathanthri explained. "However, overall, this will be advantageous for the business community, especially considering that a significant portion of Sri Lanka’s GDP is derived from the service sector."
The country's recent selective default on external debt had led to heightened transaction costs, characterized by an increase in the weighted average cost of capital (WACC) and exchange commission structures (ECS). Consequently, Sri Lankan entities had been compelled to navigate a cash-strapped cycle.
Moreover, Thewarathanthri expressed confidence in banks regaining access to global funds following the anticipated sovereign credit rating upgrade. This resurgence would be particularly crucial for bankers in light of the impending enforcement of the single-borrower exposure limit.
Looking ahead, Thewarathanthri noted the government's potential to tap into global capital markets within 18 months post the initial rating upgrade, subject to IMF guidelines and Gross Financial Needs targets.
"While the market accessibility post-upgrade remains uncertain, the ability to access global markets within the stipulated timeframe hinges significantly on adherence to IMF guidelines and fulfilling Gross Financial Needs targets," Thewarathanthri remarked.
