COLOMBO: Fitch Ratings on Saturday downgraded Sri Lanka's sovereign rating to 'CC' from 'CCC', citing a growing risk of debt default in 2022, despite repeated assurances from the central bank that steps will be taken to meet all repayments.

The ratings agency said the downgrade was due to Sri Lanka's worsening external liquidity position, underscored by a drop in foreign exchange reserves, set against high external debt payments and limited financing inflows.

Sri Lanka has foreign currency debt service payments of $6.9 billion in 2022, equivalent to nearly 430% of official gross international reserves as of November 2021, Fitch said in a press statement.

Sri Lanka economy slumps in face of forex crisis

Cumulative foreign currency debt service amounts to about $26 billion from 2022 through to 2026, it added.

"We believe it will be difficult for the government to meet its external debt obligations in 2022 and 2023 in the absence of new external financing sources," Fitch said.

Sri Lanka's central bank disputed Fitch's move, calling it "reckless."

It said adequate steps, including negotiating multiple swaps with India and other "friendly nations," were nearing completion and reserves would be above $3 billion at the end of 2021.

The central bank also said it would "imminently" draw on a $1.5 billion Chinese renminbi swap to help prop up reserves.

"It must also be noted that the Government has given a clear assurance that Sri Lanka will honour all debt obligations in the period ahead, and Sri Lanka has not delayed a single payment even under severe COVID-19 stresses over the past two years," the central bank said in a statement.