Moody’s Investors Service (“Moody’s”) reviews all of its ratings periodically in accordance with regulations -- either annually or, in the case of governments and certain EU-based supranational organisations, semi-annually. This periodic review is unrelated to the requirement to specify calendar dates on which EU and certain other sovereign and sub-sovereign rating actions may take place.
Moody’s conducts these periodic reviews through portfolio reviews in which Moody’s reassesses the appropriateness of each outstanding rating in the context of the relevant principal methodology, recent developments, and a comparison of the financial and operating profile to similarly rated peers.
Moody’s has now completed the periodic review of a group of issuers that includes Sri Lanka and may include related ratings. The review did not involve a rating committee, and this publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future; credit ratings and/or outlook status cannot be changed in a portfolio review and hence are not impacted by this announcement. The credit profile of Sri Lanka (issuer rating B2) is supported by the country’s “baa2” economic strength, incorporating its modest growth potential, large economy and high per-capita income levels compared to similarly-rated sovereigns, as well as vulnerability to climate change risk; Sri Lanka’s “ba3” institutions and governance strength incorporates a mixed track record of implementation of important fiscal, monetary and economic reforms, particularly given the often disruptive political and policymaking environment and contentious nature of some structural reforms; its “ca” fiscal strength considers its large government debt burden, very weak debt affordability and vulnerability to local currency depreciation, combined with contingent liability risks from state-owned enterprises; its “b” susceptibility to event risk is driven by a combination of political, government liquidity and external vulnerability risks, reflecting Sri Lanka’s vulnerability to sudden shifts in investor sentiment, tightening in financing conditions and political and policy uncertainty that pose risks to the sovereign’s ability to refinance large amounts of maturing government debt.
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