Bangkok--21 Oct--Moody's
Moody's Investors Service has published its first annual sovereign report on Sri Lanka, and which provides a methodological assessment underpinning the country's B1 foreign-currency issuer rating and the stable rating outlook.
The main considerations underpinning the rating rationale are:
1. A substantial pick-up in economic growth potential is underway;
2. Strategic policy initiatives and reforms are supported by a strong domestic political mandate and sound monetary management;
3. Government credit metrics are weak, but, improvements in fiscal and debt dynamics, and the external balance of payments position are likely; and
4. Reduction in event risk follows the conclusion of the civil conflict, but the sovereign's balance sheet is stretched, and any materialization of contingent liabilities would be problematic.
"The outlook is stable and balances the likelihood of credit improvements that could materialize from stronger economic performance and policy reforms, against the government's large debt overhang and lingering external refinancing risks," says Mr. Aninda Mitra, a Moody's Vice President and Senior Analyst.
Mitra was speaking on the release of the report, and which followed the publication of a press release on September 22 announcing its assignment of the first-time rating to the Government of Sri Lanka.
"The stable outlook also considers Sri Lanka's small size, shallow domestic capital markets, and relatively modest gross domestic savings.
We therefore place more forward-looking credit emphasis on an improvement in fiscal management, which is an area where reforms are planned, but, a track record is awaited," adds Mitra.
What Could Change the Rating -- Up:
An improvement in the government's fiscal and debt positions; lower and less volatile inflation; and, sustainable improvements in foreign currency reserve adequacy, supported in particular by larger foreign direct investment inflows.
What Could Change the Rating -- Down:
Failure to progress on fiscal consolidation, or a loss of inflation control, and a substantial worsening of the country's external balance and foreign currency liquidity position. A reversal of recently achieved political stability, which could adversely impact resident and foreign investor confidence.
Previous rating action and methodology:
This report explains the rationale for a first-time rating action.
The principal methodology used in rating The Government of Sri Lanka was Sovereign Bond Ratings methodology published in September 2008. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.
Singapore
Aninda S. Mitra
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Singapore
Thomas J. Byrne
Senior Vice President - Regional Credit Officer
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's Investors Service Singapore Pte. Ltd.
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