Sri Lanka, Pakistan face external risks amid US, China trade war: Moody’s

Source: Moody's Investors Service

ECONOMYNEXT – Sri Lanka and Pakistan are among Asian countries that face the highest risks of rising debt costs and depreciation as global growth slows due to a trade war between the US and China, Moody’s, rating agency said.

Emerging and frontier markets with ‘B’ ratings faced risks.

“Weak debt affordability, high debt burdens, a reliance on FC borrowing, and thin reserves coverage of external debt payments make these sovereigns’ credit profiles exposed to a shift in financing conditions,” the rating agency said.

“Beside exposure, downward credit pressures would likely materialize where we estimate the negative economic impact of tighter financing conditions to be significant or if the government seemed unlikely to adopt measures that would buffer and arrest the shock.”

Some countries faced higher debt after depreciation whole others saw the interest burden rise.

“In terms of debt affordability, Sri Lanka, Pakistan, Egypt, Angola, and Ghana would see the most significant deterioration in their interest payments-to-revenue ratios compared to our baseline 2019-20 forecasts,” Moody’s said,

External vulnerabilities were high for ‘B’ rated sovereign such as Pakistan, Belarus, Turkey and Sri Lanka, under stress tests, Moody’s said.

In South Asia, Sri Lanka and Pakistan both have unstable soft-pegs. Turkey has a notorious soft peg which collapses suddenly. (Colombo/Sept12/2019)