Sri Lanka political crisis could have a lasting negative impact: Moody’s

ECONOMYNEXT – Sri Lanka’s government could reduce risks associated with repaying forein loans by going for longer term borrowings, Moody’s rating agency has said amid a political crisis triggered by the sudden appointment of ex-President Mahinda Rajapaksa as Prime Minister by President Maithripala Sirisena.

Moody’s said that uncertainty about the direction of future policy following the recent political crisis could have a large and lasting negative impact on international investors’ confidence.

The crisis could undermine Sri Lanka’s ability to refinance forthcoming external debt at affordable costs, it also said.

Sri Lanka’s large external financing needs and substantial foreign currency government debt raise its vulnerability, Moody’s Investors Service said in a new report.

External payments due over the next year are materially higher than foreign exchange reserves, the rating agency said in its 2019 Global Emerging Market Outlook report.

The government’s gross borrowing requirement of about 16%-20% of GDP and significant foreign currency borrowing on commercial terms also make Sri Lanka sensitive to external financing conditions, it said.

“Lengthening average government debt maturities mitigate this risk,” the report said.

The crisis was triggered when President Maithripala Sirisena replaced Prime Minister Ranil Wickremesinghe with former president Mahinda Rajapaksa last month.

Sri Lanka’s central bank has said it is confident of getting enough money to repay loans falling due next year. (COLOMBO, 15 November 2018 – Update II)





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