“Don’t underestimate Moody’s warning” | Page 2 | Sunday Observer

“Don’t underestimate Moody’s warning”

25 July, 2021
Dr. W.A. Wijewardena
Dr. W.A. Wijewardena

Moody’s warning should not be taken lightly as the country is not out of the woods on repayment of foreign debt due for the next four years, a top economist told Sunday Observer Business on Friday.

Former Central Bank Deputy Governor Dr. W.A. Wijewardena said, “I don’t think that Moody’s rating review alert will actually result in a further downgrade since the bonds that will mature on  July 27 will be repaid with interest; however, its warning should not be taken lightly since there are other highly critical forex commitments coming up in the next 12 months due to lack of sufficient foreign reserves. This will affect the bonds due to mature in January next year. 

Hence, Sri Lanka has no choice but to seek IMF assistance to overcome the present impasse.

Sri Lanka’s ‘Caa1’ sovereign rating has been placed on review for downgrade by Moody’s citing weak external position and decreasing institutional strength. In a statement Moody’s said the decision to place the ratings under review for downgrade is driven by Moody’s assessment that Sri Lanka’s increasingly fragile external liquidity position raises the risk of default.

It noted that the assessment reflects governance weaknesses in the ability of the country’s institutions to take measures that decisively mitigate significant and urgent risks to the balance of payments.

However, Sri Lanka has questioned a move by the Singapore-based rating agency Moody’s to downgrade the country›s sovereign credit ratings, calling it ill-judged, ill-timed and unacceptable

As of end June the gross official reserves stood US dollars 4.0 billion (equivalent to 2.7 months of imports) which does not include the bilateral currency swap facility with the People’s Bank of China (PBoC) of CNY 10 billion (equivalent to approximately US dollars 1.5 billion). 

Reaching five percent growth in 2021 seems achievable given the GDP growth figures in the first quarter this year said a senior official of the Central Bank following the release of the first quarter data last week

GDP growth for the first quarter this year according to estimates released last week has been a 4.3 percent positive growth rate compared to  the 1.8 percent growth notched in the corresponding quarter last year.

The GDP for the first quarter this year at constant price had increased to Rs. 2,393,922 million from Rs. 2.295,432 million recorded in the first quarter  of 2020. In addition the GDP for the first quarter 2021 at current price  had increased to Rs. 4,173,783 million from Rs. 3,844,079 million recorded in the corresponding quarter of 2020 registering a 8.6 percent change in the current price GDP.