Moody’s downgrades Sri Lanka’s rating to Ca; outlook stable

COLOMBO (News 1st); Moody’s Investors Service (“Moody’s”) has today downgraded the Government of Sri Lanka’s long-term foreign-currency issuer and senior unsecured debt ratings to Ca from Caa2.

The outlook is stable.The decision to downgrade the ratings is driven by the authorities’ announcement of debt servicing suspension [1] on external public debt repayments, which will lead to a series of defaults with the first coupon payments for the government’s international bonds coming due today, 18 April 2022.Given the low level of foreign exchange reserves, compounded by the rise in the balance of payment pressures with higher fuel and food prices and the slow recovery in tourism and foreign direct investment inflows, Moody’s assesses that private sector creditor losses stemming from the eventual debt restructuring are likely to be material and exceed the limited levels of loss consistent with the previous Caa2 rating.This assessment further reflects governance weaknesses in the ability of the country’s institutions to take measures that decisively address the very low adequacy of foreign exchange reserves and very weak debt affordability, thereby contributing to loss given default, at least in line with precedents by other defaulting sovereigns.Although credit pressures remain significant, the stable outlook reflects Moody’s view that the scale of losses that private-sector creditors would face in a debt restructuring would likely be consistent with levels associated with the Ca rating.A status quo scenario without the implementation of fiscal reforms and the presence of a large external financing envelope may result in deeper losses than implied by the Ca rating.However, the government is seeking financial support from the.