The Government expresses strong displeasure on the recent assessment by Moody’s Investors Service that led to the rating action, after being placed under review for downgrade three months ago in a similar fashion, the Central Bank stated in a communiqué last week.
“Again, Moody’s irrational rating action with regard to Sri Lanka comes a few days before a key event, namely the announcement of the Government Budget for 2022, and this apparent hastiness and the view expressed during discussions with Moody’s analysts that the nature of the Budget is irrelevant to the financing plans of the Government clearly demonstrates the lack of understanding of such analysts.
“It also reflects serious governance weaknesses of such agencies, where they systematically overlook the positive developments and expectations in emerging market economies, but attribute much greater weight to downside risks.
“Moody’s assessment has also failed to take into account the latest developments in strengthening the country’s external position through an array of measures, some of which have already yielded intended outcomes, as announced by the Central Bank of Sri Lanka (CBSL) on October 26, 2021.
“The assessment exposes the rating agency’s ignorance on the well-established political stability within a democratic setup, when it claims about “governance weaknesses” and “challenging domestic political environment”, and it’s obvious insensitivity to the challenges faced by a country that is recovering from adverse external events without bringing pain to investors who have stood by Sri Lanka during various difficulties that the country has undergone in the past. In addition to the six-month strategy articulated in the Road Map presented by the CBSL on October 1, Moody’s assessment has failed to recognise the medium to long term funding arrangements that are being finalised with various bilateral sources, which are due to be materialised in the near term.
“They include, among others, credit lines of several billions of USD from India and the Middle Eastern counterparts to procure petroleum; an arrangement for a large forex loan from a Middle Eastern nation as a bilateral long-term loan, and the proposals received for the syndicated loan arrangement that are being evaluated at present.
“A substantial amount of funds is expected from the already lined-up prioritised project loan related inflows to the Government. The recent discussions on bilateral currency SWAP arrangements with several central banks are also expected to provide the country with additional support in the near term. Without considering such cash flows, any assessment on the repayment capacity of the Government carries prejudice.
“Rating action based on such biased assessment is unfair and detrimental to the country’s prospects, as Sri Lanka is emerging strongly from the adverse effects of the Covid-19 pandemic. Needless to say, such action by an international rating agency calls into question the validity of its advice to the investor community.
“Nevertheless, it is clear that international investors have continued to put faith in Sri Lanka’s plans for recovery, as repeatedly reflected in their preference to hold Sri Lanka’s International Sovereign Bonds (ISBs) to maturity, despite claims by Moody’s about a heightened risk of default by Sri Lanka.
“The Government is in the process of preparing its Budget for the forthcoming year to be presented on November 12 with economic activities returning to near normalcy, and the country is already experiencing strong signs of revival of tourism and other activities that generate non-debt creating foreign currency inflows, including the monetisation of under-utilised non-strategic assets.
“This untimely rating decision taken before the Budget shows that Moody’s has not taken all the relevant information to form its assessment of the country’s performance and the expected path, into account.
“Moody’s Investors Service on Thursday downgraded Sri Lanka’s long-term foreign currency issuer and senior unsecured debt ratings to Caa2 from Caa1 under review for downgrade. The outlook is stable. This concludes the review for downgrade initiated on July 19, 2021,” the release further stated.