ECONOMYNEXT – Sri Lanka’s B2 rating has been placed rating watch by Moody’s a rating agency for possible downgrade sayig the rupee and tax revenues have fallen, but the agency would watch for three months or more how the country will manage the shock from Coronavirus.
“The decision to place Sri Lanka’s ratings on review for downgrade is prompted by Moody’s assessment that the acute tightening in global financing conditions, fall in export revenue, and sharp slowdown in GDP,” the agency said.
“For Sri Lanka, the current shock transmits mainly through capital outflows, a marked local currency
depreciation, wider risk premia and a sharp drop in GDP growth that raise the sovereign’s debt burden,liquidity pressures and cost of external debt servicing,”“This shock occurs at a time when Sri Lanka’s credit profile is highly vulnerable given low reserve coverage of large forthcoming external debt payments and very weak debt affordability.”
Moody’s also said the rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, and falling asset prices are creating a severe and extensive credit shock across many sectors, regions and markets.
“The combined credit effects of these developments are unprecedented,” the rating agency said.
“Moody’s regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.”Sri Lanka however has contained the Coronavirus outbreak from third countries up to April, after successfully nipping in the bud a Wave I from China.However Sri Lanka has a soft-pegged regime which analysts warned would get the country in trouble in unless past pratices and liquidity injections were abandoned.