Moody's Investors Service today downgraded the Government of Sri Lanka's long-term foreign currency issuer and senior unsecured ratings to Caa1 from B2 and changed the outlook to stable.

This concludes the review for downgrade initiated on 17 April 2020.

The decision to downgrade Sri Lanka's rating to Caa1 reflects Moody's assessment that the coronavirus- induced shock, which Moody's regards as a social risk, will significantly weaken Sri Lanka's already fragile funding and external positions.

“Heightened liquidity and external risks stem from Sri Lanka's limited secured funding sources to meet its material external debt service payments over the coming years, during which period market refinancing will remain vulnerable to shifts in investor sentiment,” Moody’s said.

“At the same time, fiscal and external pressures will continue to limit the scope for reforms to address long-standing credit vulnerabilities, denoting weakening institutions and governance, an important driver of today's rating action,” it added.

The stable outlook denotes balanced credit risks at the Caa1 rating level.

Both Fitch Ratings and Standard & Poor’s downgraded Sri Lanka’s credit rating in April and May, respectively,