Sri Lanka’s post-default fiscal consolidation is likely to be hindered by increased spending to address damage caused by Cyclone Ditwah, Moody’s Ratings said in a recent statement.
Moody’s said several tropical cyclones since mid-November, combined with unusually heavy monsoon rains, have caused severe flooding, landslides and the loss of hundreds of lives across South and Southeast Asia.
Moody’s said the economic, fiscal and credit impact is likely to be most significant for Sri Lanka, which holds a Caa1 stable rating.
“While we do not expect a reversal in the government’s commitment to the ongoing International Monetary Fund program and related reforms, the economic impact of the cyclone and spending to deal with the aftermath will stymie post-default fiscal consolidation,” Moody’s said.
The cyclone caused extensive damage to critical infrastructure, including roads, bridges, rail networks and power grids, disrupting supply chains and economic activity across the country.
Tourism, agriculture and manufacturing, key sectors that drive economic output and employment, were among the most affected, according to the agency.
Moody’s noted that while Sri Lanka, Indonesia, the Philippines and Vietnam all face high credit exposure to physical climate risks, Sri Lanka has significantly weaker fiscal capacity to build climate resilience.
“Effective governance is also key in mitigating such risks and often correlates with lower physical climate risk vulnerability in regions of high exposure,” the agency said.
Despite some recent improvements, Moody’s assigned governance issuer profile scores of 4 to both Sri Lanka and Vietnam, indicating high credit exposure to governance-related risks. (Newswire)