- Reiterates Govt. has taken all measures to repay the upcoming ISB maturity of $ 1 b due in end-July
- Recalls Moody’s downgraded SL on 28 September 2020 before a $ 1 billion ISB was to mature on 4 October 2020 and Govt. successfully settled the liability without any hesitation
- Flags off need for Govt. to revisit its relationship with rating agencies
- Invites investors to approach Sri Lankan policy authorities at the highest levels who always remain open for constructive dialogue
The Government on Monday expressed its surprise over the decision by Moody’s Investors Service to place Sri Lanka’s rating “under review for downgrade,” saying it was an “unwarranted” statement that was “ill-timed, ill-judged and hence unacceptable”.
“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,” the Ministry of Finance said issuing a response to Moody’s announcement.
Moody’s Investors Service Monday announced that it placed the Government of Sri Lanka’s Caa1 foreign currency long-term issuer and senior unsecured debt ratings under review for downgrade.
“The decision to place the ratings under review for downgrade is driven by Moody’s assessment that Sri Lanka’s increasingly fragile external liquidity position raises the risk of default,” the global rating agency said.
Responding to the announcement, the Finance Ministry said Moody’s action could create uncertainty among investors who have kept faith in Sri Lankan ISBs and other investments.
“As experienced in the past, such undue uncertainty created by the rating agency could lead to price volatilities in the market for ISBs and for other investments.”
The Finance Ministry said the GOSL had taken all measures to repay the upcoming ISB maturity of $ 1 billion due in end July 2021.
The GOSL also observed that this was not the first time Moody’s had taken such surprise action on the eve of an assured imminent payment.
Moody’s downgraded Sri Lanka on 28 September 2020, just a few days before a $ 1 billion ISB was to mature on 4 October 2020 and the GOSL successfully settled the liability without any hesitation. “GOSL continues its unblemished debt service payment record,” the Finance Ministry statement said.
The Ministry also noted that the Sri Lankan economy had shown strong signs of broad-based recovery, with a real GDP growth of 4.3% in the first quarter 2021.
“The domestic vaccination drive is continuing at full force, providing confidence of a continued improvement in economic activity, combined with a possible strong rebound of the tourism sector. Ongoing developments in the domestic production economy are expected to improve the country’s export potential, while facilitating import alternatives. Improving domestic economic sentiments are reflected in the activity in the Colombo Stock Exchange as well. The pickup in economic activity is also expected to improve the fiscal position of the Government, from both revenue and expenditure aspects, and the Government remains committed to achieving its announced medium term fiscal path towards a budget deficit of 4% of GDP by 2025,” the statement noted.
The Finance Ministry further remarked that the unwarranted announcement by Moody’s also reemphasised 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. Investors are invited to approach the Sri Lankan policy authorities at the highest levels who always remain open for constructive dialogue and will welcome any one-on-one engagement or roadshow discussions, without being dissuaded by such unsubstantiated announcements,” Finance Ministry added.