Reuters - Sri Lanka has arranged funds to repay $1 billion for a sovereign bond maturing in January, a finance ministry official said on Wednesday, seeking to assure investors that the island’s political crisis will not hurt its ability to service debt.

The official’s comments came a day after Moody’s downgraded Sri Lanka’s credit rating for the first time in eight years, blaming the crisis for aggravating already problematic finances.

A bitter row over President Maithripala Sirisena’s sacking of Prime Minister Ranil Wickremesinghe last month and the competing influences of China and India have shattered the island’s fragile ruling coalition.

“There is no problem in servicing the debt. Under the constitutional provisions, the debt servicing comes under special laws and not under the parliament appropriation bill. We have already arranged $1 billion for the debt repayment in January,” the official told Reuters.

The official didn’t want to be named as he was not authorised to speak to reporters.

Sri Lanka is scheduled to repay over a total of $5.8 billion including $1.54 billion in interest payments in the next 12 months, the central bank’s latest data showed. Foreign reserves were at $7.2 billion.

The central bank in a statement said it had initiated negotiations with central banks of friendly nations to obtain foreign currency swap facilities of “sizable amounts”.

“These measures will further strengthen the country’s foreign reserve adequacy, and would enable timely servicing of external obligations while intervening cautiously in the foreign exchange market to prevent a disorderly adjustment of the exchange rate,” the central bank said.

Since the removal of Wickremesinghe, Sirisena has dissolved parliament and called for a fresh election, but the Supreme Court last week ordered a suspension of that decree until it had heard petitions challenging the move as unconstitutional.

The political instability has raised fears it will hurt the economy and impact the country’s ability to service its large external debt taken to finance reconstruction following the end the civil war in 2009.

Moody’s cut Sri Lanka to B2 from B1 and, though there is likely to be relief in Colombo that it put a “stable” outlook on the new rating, the credit agency underscored ongoing risks.

The finance ministry said the downgrade would raise the costs of external borrowing, although the country did not have any plans to raise more funds overseas this year.