Written by Zeenath Musafer
29 Sep, 2020 | 11:33 am
Colombo (News 1st); Following Moody’s downgrading on Sri Lanka’s Sovereign rating yesterday, the Ministry of Finance responded claiming the rating action is unwarranted and the downgrade ”failed to do justice to the ground reality of the ongoing rapid economic recovery backed by vastly improved business confidence arising from the return of political and policy instability after a lapse of five years”.
The MOD said such an announcement is unwarranted at a time the new government is about to announce a new budget for 2021.
Moody’s Investors Service downgraded the Government of Sri Lanka’s long-term foreign-currency issuer and senior unsecured ratings by two notches to Caa1 from B2 and changed the outlook to stable yesterday.
The decision to downgrade Sri Lanka’s rating to Caa1 reflects Moody’s assessment that the coronavirus induced shock, which Moody’s regards as a social risk, will significantly weaken Sri Lanka’s already fragile funding and external positions.
Moody in its statement added that the heightened liquidity and external risks stemming from Sri Lanka’s limited secured funding sources to meet its material external debt service payments over the coming years, during which period market refinancing will remain vulnerable to shifts in investor sentiment.
”At the same time, fiscal and external pressures will continue to limit the scope for reforms to address long-standing credit vulnerabilities, denoting weakening institutions and governance, an important driver of today’s rating action,” the statement added.
The stable outlook denotes balanced credit risks at the Caa1 rating level. On the downside, Sri Lanka’s very large and recurring financing needs over the near- to medium-term risk putting more pressure on the sovereign’s external and liquidity position than Moody’s currently assess.
Concurrently, Moody’s has lowered Sri Lanka’s local currency bond and bank deposit ceilings to B1 from Ba2, lowered its long-term foreign-currency bond ceiling to B3 from Ba3, and lowered its foreign currency bank deposit ceiling to Caa1 from B3. These ceilings act as a cap on the ratings that can be assigned to the obligations of other entities domiciled in the country.
Sri Lanka’s Ministry of Finance said that unlike its peers in the emerging market group, the island nation has been able to decisively deal with the domestic spread of the virus and is now moving along a recovery path towards growth and stability. In its statement, the ministry added that merchandise exports have returned to pre-covid19 monthly averages of 1 billion USD and with the curtailment of imports, the country’s trade deficit has significantly improved.
The Ministry urged foreign investors not to be dissuaded by the recent unwarranted rating downgrade and the ” erroneous analysis published recklessly by Moody’s.
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