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Moody’s downgrades Sri Lanka sovereign rating to Ca

 Moody’s Investors Service has downgraded Sri Lanka’s sovereign rating to Ca from Caa2 with a stable outlook, following a decision by the island to suspend debt payments.

Moody’s said the suspension would lead to “will lead to a series of defaults with the first coupon payments for the government’s international bonds coming due today, 18 April 2022.”

“..Moody’s assesses that private sector creditor losses stemming from the eventual debt restructuring is likely to be material and exceed the limited levels of loss consistent with the previous Caa2 rating.”

ECONOMYNEXT – Moody’s Investors Service has downgraded Sri Lanka’s sovereign rating to Ca from Caa2 with a stable outlook, following a decision by the island to suspend debt payments.

Moody’s said the suspension would lead to “will lead to a series of defaults with the first coupon payments for the government’s international bonds coming due today, 18 April 2022.”

“..Moody’s assesses that private sector creditor losses stemming from the eventual debt restructuring is likely to be material and exceed the limited levels of loss consistent with the previous Caa2 rating.”

Singapore, April 18, 2022 — 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 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 is 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.

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