Sri Lanka has disputed a warning by Moody’s Investors Services that it may further downgrade the island’s sovereign rating saying it was ill-judged as funds were lined up to repay foreign debt including sovereign bond maturing in July.
Sri Lanka’s Finance Ministry said the review for downgrading Sri Lanka’s rating which was already at ‘Caa1’ was ill-judged and unacceptable.
“.Moody’s action could create uncertainty among investors who have kept faith in Sri Lankan ISBs and other investments,” a Finance Ministry statement said.
Moody's Investors Service 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.
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.
As experienced in the past, such undue uncertainty created by the rating agency could lead to price volatilities in the market for ISBs and for other investments.
In any case, the Government has taken all measures to repay the upcoming ISB maturity of US dollars 1,000 million due in end July 2021.
It also observes that this is not the first time Moody’s has taken such surprise action on the eve of an assured imminent payment.
Moody’s downgraded Sri Lanka on 28 September 2020, just a few days before a US dollar 1,000 million ISB was to mature on 04 October 2020 and the Government successfully settled the liability without any hesitation.
Government continues its unblemished debt service payment record.
The Sri Lankan economy has shown strong signs of bioad based recovery, with a real GDP growth of 4.3 per cent in the first quarter 2021.
The domestic vaccination drive is continuing at full force, providing confidence of a continued improvement in economic activity, combined with a possible strong rebound of the tourism sector.
Ongoing developments in the domestic production economy are expected to improve the country’s export potential, while facilitating import alternatives. Improving domestic economic sentiments are reflected in the activity in the Colombo Stock Exchange as well.