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Sri Lanka Disputes Moody's Downgrading of Credit Rating; Calls it Ill-judged, Unacceptable

Moody's said that Sri Lanka's low and declining foreign reserves adequacy, limited and narrowing set of external financing options for the government and the extremely large share of government revenue taken up by interest payments raises the risk of debt default.

Moody's said that Sri Lanka's low and declining foreign reserves adequacy, limited and narrowing set of external financing options for the government and the extremely large share of government revenue taken up by interest payments raises the risk of debt default.

Moody's said that Sri Lanka's low and declining foreign reserves adequacy, limited and narrowing set of external financing options for the government and the extremely large share of government revenue taken up by interest payments raises the risk of debt default.

Sri Lanka has questioned a move by the Singapore-based rating agency Moody's to downgrade the country's sovereign credit ratings, calling it ill-judged, ill-timed and unacceptable. The Moody's Investors Services on Monday said that it may further downgrade Sri Lanka's sovereign rating, almost a year after it did the same in September last year.

In a statement, Moody's said that Sri Lanka's low and declining foreign reserves adequacy, limited and narrowing set of external financing options for the government and the extremely large share of government revenue taken up by interest payments raises the risk of debt default. They expected the coverage by foreign exchange reserves of external repayment to continue falling from already low levels. As at the end of June Sri Lanka's foreign exchange reserves amounted to just around 3.6 billion dollars,'' Moody's said.

In an official statement, the Sri Lankan government expressed surprise towards the decision taken by the rating agency. The Government of Sri Lanka (GOSL) wishes to express its surprise over today's announcement by Moody's Investors Service, at a time when the GOSL has diligently lined up adequate funds to repay its maturing foreign debt liabilities, including the International Sovereign Bond (ISB) maturing at end July 2021. "Moody's action could create uncertainty among investors who have kept faith in Sri Lankan ISBs and other investments, Sri Lanka's Finance Ministry said in a statement on Monday.

The ministry said the government has taken all measures to repay the upcoming international sovereign bond payment of USD 1,000 million which is due by the end of this month. The ministry said this was not the first time that the rating agency had threatened a downgrade on the eve of an assured imminent payment.

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Moody's downgraded Sri Lanka on September 28, 2020, just a few days before a USD 1,000 million ISB was to mature on October 4, 2020 and the government successfully settled the liability without any hesitation. The Government of Sri Lanka continues its unblemished debt service payment record, the ministry has stressed.

The Sri Lankan economy has shown strong signs of broad based recovery, with a real GDP growth of 4.3 per cent in the first quarter 2021. The unwarranted announcement by Moody's also re-emphasises the need for the GOSL to revisit its relationship with rating agencies. Unwarranted announcements of this nature are also not in the best interest of investors'', the finance ministry stressed.

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first published:July 20, 2021, 15:17 IST