Moody’s downgrade Sri Lanka’s sovereign rating

Moody’s downgrade Sri Lanka’s sovereign rating

Moody’s downgrade Sri Lanka’s sovereign rating

Written by Amani Nilar

28 Oct, 2021 | 4:46 pm

COLOMBO (News 1st);  Moody’s Investors Service has downgraded Sri Lanka’s sovereign rating to Caa2 from Caa1 and changed the outlook to stable.

In a release issued today (28), the agency states that the decision to downgrade Sri Lanka’s rating to Caa1 reflects Moody’s assessment that the coronavirus-induced shock will significantly weaken Sri Lanka’s already fragile funding and external positions.

Heightened liquidity and external risks stem 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, the agency further states.

At the same time, fiscal and external pressures will continue to limit the scope for reforms to address long-standing credit vulnerabilities, the agency adds, denoting weakening institutions and governance, which is an important driver of rating action.

However, Moody’s states that Sri Lanka’s rating is supported by the country’s relatively high levels of per capita income and modest economic competitiveness, which provide some prospects for growth to recover to more robust rates. Moderate institutions strength in some areas also provides some support compared to similarly rated peers.

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.

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