Moody’s warns Constitutional standoff a credit negative

Tuesday, 30 October 2018 01:45 - - {{hitsCtrl.values.hits}}

International rating agency Moody’s yesterday warned Sri Lanka’s dragging Constitutional crisis is a credit negative, especially since it could have a lasting negative impact on international investor confidence and efforts to raise funds from capital markets for debt repayment.

“The current political crisis in Sri Lanka is credit negative for the sovereign. The President’s sudden appointment of Rajapaksa as Prime Minister significantly heightens policy uncertainty. Additionally, the possible social tensions that may unfold in the next few weeks would have a negative impact on the economy, which is already growing slowly,” Moody’s Investors Service Analyst – Sovereign Risk Group Matthew Circosta said.

Sri Lanka’s economy has grown under 4% in the last three quarters and the Central Bank has said it does not expect growth to exceed 4% in 2018. The country has also faced vulnerabilities due to an appreciating dollar and higher fuel prices. From 2019 onwards, Sri Lanka will have to repay an estimated $ 3.5 billion in debt each year till 2021 and will need to borrow from international capital markets to meet this need.

Last Friday, Parliament passed the much awaited legislation allowing the Central Bank to expand their borrowing to Rs. 310 billion to build buffers to repay debt and assist in controlled depreciation of the rupee.

“At a time when global financial markets are turbulent, uncertainty about the direction of future policy could have a large and lasting negative impact on international investor confidence. Such a development would undermine Sri Lanka’s ability to refinance forthcoming external debt in early 2019 at affordable costs,” he added.