Sri Lanka’s has been continually downgraded 5 times over the course of 6 years from December 2015 to December 2021, while its regional peers have managed to maintain their credit ratings to a greater extent.
The top 5 common reasons cited as the reasons for downgrades are:
Sri Lanka’s reserves in months of import coverage have been gradually falling from usable reserves being at 4 months of imports at the end of 2015 to just 1 month of imports at the end of 2021. This fall in reserves has been a key reason for the downgrade in Sri Lanka’s credit ratings despite Sri Lanka honoring its external debt repayments.
Gross Official Reserves in months of import coverage for 2021 is 0.95 months while import coverage for 2020 was at 4.25 months. It is important to note that this is the first time that reserves in months of import coverage has reduced to less than one month of imports since 1975.