Sovereign credit likely to deteriorate if IMF program delayed, analyst warns

Sri Lanka
By Editor_1
A man walks along a beach, against the backdrop of Colombia's Financial City, Sri Lanka June 12, 2018 - REUTERS/ Dinuka Liyanawatte
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COLOMBO – Sri Lanka’s sovereign credit is under pressure and credit metrics are likely to deteriorate further if a program with the International Monetary Fund (IMF) is delayed, a sovereign rating analyst said.

Recent low growth and a coronavirus pandemic had put pressure on Sri Lanka’s ‘fiscal matrix’ and the external front’ said Kim Eng Tan, Senior Director, Sovereign and International Public Finance Ratings.

“We see this deterioration intensifying recently and it is likely to carry on for the foreseeable future,” he said during a conference call on Asia Pacific credit.

“So clearly the pressure on the rating is ongoing.”

He said Standard and Poor’s had kept the rating at ‘B-‘ with a stable outlook expecting the government to take corrective measures backed by an IMF program.

Tan said, “a return to an IMF package, which will not only stabilize the external finances but will also put in a policy framework, will likely see the metrics repair on a medium term basis.”

Noting that they had not seen the government being very willing to pursue this idea however, he said the metrics were continuing to worsen.

“Now if the delay of going to the IMF is too long we could see a significant deterioration on the external debt – as well as the government debt- to such an extent that we may have to lower the rating further.

“And in fact the risk of default may increase if they do not find enough time to close a package,” Tan warned.

Moody’s and Fitch had already downgraded Sri Lanka to ‘CCC’.

Sri Lanka has also been monetizing debt at an unprecedented scale and analysts have warned that the currency would come under pressure as soon as domestic credit picked up.

-economynext.com

Editor_1
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