Categories: Business

LNP – Moody’s puts Sri Lanka’s rating under review for downgrade on default risk

LONDON, (Reuters) – Moody’s Investors Service on Monday said it had placed the government of Sri Lanka’s Caa1 rating under review for downgrade, citing the risk of default due to falling foreign exchange reserves.

The ratings agency said the decision, which applies to Sri Lanka’s foreign currency long-term issuer and senior unsecured debt ratings, reflected an increasingly fragile external liquidity position.

Investors and analysts are weighing the likelihood of Sri Lanka defaulting on its debt, with a fiscal deficit expected by Moody’s to average 8.5% over the next two years and interest payments likely to remain around 60-70% of government revenue over the next few years.

Central bank governor W. D. Lakshman this month expressed confidence in an improvement in Sri Lanka’s external situation and voiced confidence that it could avoid an International Monetary Fund bailout.

Moody’s said its decision reflected governance weaknesses in the ability of institutions to take measures to mitigate urgent risks to the balance of payments.

Without an IMF programme, Sri Lanka would need to secure more loans from China or India to help maintain sufficient reserves to repay the $3.7 billion of bond payments by the end of 2023, Oxford Economics estimated last week.

Sri Lanka, whose vital tourism industry has been devastated by the coronavirus pandemic, could get $800 million worth of reserves from the IMF as a part of a new allocation of special drawing rights by August or September, Lakshman said earlier this month.

Moody’s said Sri Lanka’s financing options remained narrow, with borrowing costs in international markets still prohibitive.

“Absent large and sustained capital inflows through a credible external financing strategy, Moody’s expects Sri Lanka’s foreign exchange reserves to continue declining from already low levels, further eroding its ability to meet sizeable and recurring external debt servicing needs, and increasing balance of payment risks,” the ratings agency said.

AddThis Website Tools
Tyronne Jayamanne

Recent Posts

LNP – Sri Lanka to waive visa fees for 40 more countries – Foreign Minister

The Government of Sri Lanka has decided to waive visa fees for 40 additional countries…

20 hours ago

LNP – Hrithik Roshan to grace City of Dreams grand opening on 2 August

Indian film star Hrithik Roshan is set to visit Sri Lanka next month to attend…

23 hours ago

LNP – Sri Lanka has identified five potential sites for first nuclear power plant

Sri Lanka is making progress in establishing nuclear infrastructure and has already identified potential new-build…

1 day ago

LNP – President Anura Kumara to visit Maldives on Monday

President Anura Kumara Dissanayake will undertake a state visit to the Maldives from July 28…

1 day ago

LNP – Former Minister P. Dayaratne passes away at 89

Former Minister P. Dayaratne, a veteran politician and long-serving Member of Parliament from the Ampara…

1 day ago

LNP – Rise in rambutan-related accidents

Experts have raised concerns over a growing number of accidents involving people falling from rambutan…

2 days ago