Govt. calls rating action “irrational”

• Expresses displeasure on the rating action just before the 2022 budget 
• Questions rating agency’s view that the nature of upcoming budget is irrelevant to govt.’s financing plans 
• Claims Moody’s has failed to consider latest measures taken to strengthen SL’s external position 

In response to the rating action by Moody’s, the government through the Central Bank, expressed its strong displeasure and called it “irrational” and “hasty”.

“Once again, Moody’s irrational rating action with regard to Sri Lanka comes a few days before a key event, namely the announcement of the Government Budget for 2022, and this apparent hastiness and the view expressed during discussions with Moody’s analysts that the nature of the Budget is irrelevant to the financing plans of the government clearly demonstrates the lack of understanding of such analysts,” a statement issued by the Central Bank said.  The statement charged that Moody’s assessment had failed to take into account the latest developments in strengthening the country’s external position through an array of measures, some of which have already yielded intended outcomes, as announced by the Central Bank of Sri Lanka (CBSL) on 26 October 2021. 

“Moreover, the assessment exposes the rating agency’s ignorance on the well-established political stability within a democratic setup, when it claims about “governance weaknesses” and “challenging domestic political environment”, and its obvious insensitivity to the challenges faced by a country that is recovering from adverse external events without bringing pain to investors who have stood by Sri Lanka during various difficulties that the country has undergone in the past,” it noted.

The Central Bank further said in addition to the six-month strategy articulated in the Road Map presented by the CBSL on 01 October 2021, Moody’s assessment has failed to recognise the medium to long term funding arrangements being finalised with various bilateral sources, which are due to be materialised in the near term. 
“Without considering such cash flows, any assessment on the repayment capacity of the government carries prejudice. Rating action based on such biased assessment is unfair and detrimental to the country’s prospects, as Sri Lanka is emerging strongly from the adverse effects of the COVID-19 pandemic,” the statement noted.

The Central Bank also pointed out that this type of rating action by Moody’s is not new to Sri Lanka since Sri Lanka has experienced similar rating action by Moody’s several times in the past as well. 

“For instance, Moody’s placed Sri Lanka on review for downgrade on 17 April 2020 right at the onset of the COVID-19 pandemic and just after the government signed a Foreign Currency Term Financing Facility (FTFF) with China Development Bank (CDB), hindering the implementation of the arrangement and delaying fund receipts. The downgrade was effected on 28 September 2020, just ahead of the ISB maturity in October 2020. 

Further, Moody’s placed Sri Lanka under review for downgrade on 19 July 2021 whilst the CBSL was finalizing a currency SWAP with the Bangladesh Bank and was about to repay a maturing ISB. Such questionable action generates credibility considerations as to whether Moody’s actions are driven by economic considerations only.”
Meanwhile, the statement said the government and the Central Bank are closely engaging with all stakeholders, including the international investor community and such engagements have helped clear any doubts of investors on the government’s willingness and the ability to honour all upcoming debt service obligations, as it has done throughout history. 

“Against this backdrop, the government wishes to re-assure all stakeholders, including the international investor community, that Sri Lanka remains committed to honouring all forthcoming obligations in the period ahead. 
The Sri Lankan authorities welcome direct engagement with investors and invite investors for regular one-on-one discussions without being distracted by such unfounded announcements by external agencies,” the statement said.