Moody’s Investors Service (“Moody’s”) has today assigned a B2 rating to the Government of Sri Lanka’s proposed senior unsecured US dollar-denominated bonds.
The rating is based on the preliminary offering memorandum received on 7 March, 2019.
The bonds will rank pari passu with the Government of Sri Lanka’s current and future senior unsecured external debt.
The B2 rating assigned to the notes mirrors the Government of Sri Lanka’s issuer rating of B2.
The proceeds of the bonds are intended to meet government expenditures.
Sri Lanka’s credit profile reflects significant government and external vulnerability risks amid ongoing tightening in external and domestic financing conditions, exacerbated most recently by a political crisis. This is balanced against moderate per capita income levels and stronger institutions relative to many similarly-rated sovereigns that support the B2 rating.
Sri Lanka’s ongoing high vulnerability to tightening in external and domestic financing conditions, given very high government debt, weak debt affordability, relatively large borrowing needs, reliance on external funding and low reserves adequacy dominates risks that could abruptly lead to further negative pressure on Sri Lanka’s credit metrics.
Under its International Monetary Fund programme, the government is focused on implementing important fiscal, monetary and economic reforms that would strengthen the credit profile over the medium term.
Realising the government’s ambitious fiscal consolidation targets will involve effective implementation of revenue reforms and expenditure restraint, which will remain challenging. Political risk can disrupt fiscal and economic policymaking.
Over the medium term, the planned changes to the Monetary Law Act should strengthen the credibility and effectiveness of Sri Lanka’s monetary policy, helping the central bank anchor inflation expectations and prevent fiscal dominance.
Sri Lanka’s growth potential, relatively large economy and high income levels compared with similarly rated sovereigns provide the economy with some shock absorption capacity and help limit some of the risks from the country’s very high debt burden. Given relatively high incomes, effective reforms of tax collection and administration would allow the government to tap a sizeable potential revenue base.