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)

The post Sri Lanka’s fiscal recovery threatened by cyclone damage : Moody’s appeared first on Newswire.

Moody’s Ratings today upgraded Sri Lanka’s long-term foreign currency issuer rating from ‘Ca’ to ‘Caa1’ with a stable outlook, following creditor approval of the country’s $12.55 billion debt restructuring plan last week.

Issuing a statement, the credit rating agency said the decision to upgrade the issuer rating to Caa1 is driven by the conclusion of the restructuring of Sri Lanka’s international bonds held by private-sector creditors, which reduces the default risk on new and future issuances.

At Caa1, Sri Lanka’s credit profile reflects the reduction in external vulnerability and government liquidity risk and prospects for fiscal and debt sustainability, from a weak starting point, which are underpinned by ongoing reforms under the government’s programmes with development partners including the International Monetary Fund (IMF).

Willingness and capacity to implement reforms speak to Sri Lanka’s governance and also underpin the rating action.

However, these credit supports are balanced against still weak debt affordability and a high debt burden compared to peers, which limit the government’s fiscal flexibility and capacity to address underlying social challenges.

The stable outlook reflects balanced risks to the ratings. On the upside, the government’s commitment to and continued implementation of reforms may strengthen its credit profile beyond our current assumptions, to a level consistent with a higher rating.

On the downside, the still narrow government revenue base and limited fiscal space, combined with the reliance on external financing, pose asymmetric risks to the credit profile should the global macroeconomic environment become less supportive for a sustained economic recovery and further reform implementation.

This rating action concludes the review that we initiated on 28 November 2024.

Concurrently, we have assigned definitive Caa1 foreign currency senior unsecured ratings to Sri Lanka’s new USD-denominated issuances, specifically the macro-linked bonds (MLBs), the governance-linked bond (GLB), as well as the step-up and past-due interest (PDI) bonds, from provisional (P)Caa1 ratings.

We have also withdrawn the Ca foreign currency senior unsecured rating on Sri Lanka’s July 2022 bond, of which $268 million remains outstanding after the settlement of bonds in the government’s exchange offer, for business reasons.

Sri Lanka’s local and foreign currency country ceilings have been raised to B1 from Caa1 and B3 from Ca, respectively.

The three-notch gap between the local currency ceiling and the sovereign rating balances a contained government footprint, against still relatively limited but increasing foreign exchange buffers that confer macroeconomic risks, as well as a challenging domestic political and policymaking environment due to underlying social pressures.

The two-notch gap between the foreign currency ceiling and local currency ceiling takes into consideration the high level of external indebtedness although the rebuilding of foreign exchange buffers is reducing the risk of transfer and convertibility restrictions. (Newswire)

The post Moody’s raises Sri Lanka’s rating : Outlook stable appeared first on Newswire.

Moody’s may raise Sri Lanka’s ‘Ca’ long-term foreign currency rating, the credit ratings agency said on Wednesday, following the government’s bond-exchange offer aimed at completing the restructuring of international bonds.

The bond swap, launched on Tuesday, is an important part of the island nation’s ongoing $12.55 billion debt restructuring and efforts to stabilize the economy.

Moody’s provisionally rated the new U.S. dollar-denominated debt offerings ‘Caa1’, three notches above the current sovereign rating, though still deep into ‘junk’. The government offered macro-linked bonds (MLBs), a governance-linked bond (GLB), and stepup and past-due interest bonds.

MLBs have a downside on principal and the GLB is the first of its kind, which raised doubts about whether agencies would rate the bonds – a requirement for inclusion in indexes.

“Moody’s announcement of rating the MLBs is sensible and should support trading liquidity of the securities post exchange,” said Samy Muaddi, head of emerging markets fixed income at T.Rowe Price, adding that the contingency features of the MLB build on established precedent in global fixed income.

Moody’s said the offerings will rank equally with other similar government obligations.

Sri Lanka had defaulted on its foreign debt for the first time in May 2022, reeling under a severe crisis amid a heavy debt burden and declining foreign exchange reserves.

Sri Lankan USD bonds rose on Wednesday, with the June 2025 issue up 0.75 cent at 65.875 cents on the dollar. (Reuters)

The post Moody’s gives positive update on Sri Lanka’s economy appeared first on Newswire.