The Central Bank challenges Moody's downgrading

Colombo (News 1st) - The Central Bank Governor Dr Indrajit Coomaraswamy addressing The Economic Outlook forum today said that whilst Moody's has downgraded Sri Lanka, the economy is actually on an upward trend. He reasons that the key micro variables in the economy are 'okay' and that the economy is not on the verge of collapsing. He stated that Sri Lanka's potential growth rate according to Central Bank calculations is 5.75% and that in 2017, the number was 3.2% and therefore there is an upward trend. Moody's Report on SL Moody's Investors Service has downgraded the Government of Sri Lanka's foreign currency issuer and senior unsecured ratings to B2 from B1 and changed the outlook to stable from negative. The decision to downgrade the rating to B2 is driven by Moody's view that the ongoing tightening in external and domestic financing conditions and low reserve adequacy exacerbated most recently by a political crisis. The stable outlook denotes balanced credit risks at the B2 rating level. Moody's expectation is that, despite the current political crisis, any future government will remain broadly focused on implementing important fiscal, monetary, and economic reforms that would strengthen the credit profile over the medium term. Issuing a press release this evening the Central Bank says it is of the view that the decision by Moody's Investors Service does not properly reflect the country's macroeconomic fundamentals, and therefore unwarranted. The CBSL reiterates that Sri Lanka's macroeconomic position has neither deteriorated nor has there been any policy slippage since Moody's last rating decision in July 2018, in spite of the recent developments in the country's political sphere. It adds Sri Lanka's current level of gross official reserves amounting to USD 7.2 billion is sufficient for the country to meet its external debt obligations in the period ahead. In addition, as a precautionary measure, the CBSL has initiated negotiations with Central Banks of friendly nations with regard to obtaining foreign currency SWAP facilities of sizeable amounts. Moody's downgraded Sri Lanka to B1 with a negative outlook in July of this year, when the economy was managed by the UNP. Moody's was fined US$864 million in 2017 by US authorities over their involvement and contribution to the 2008 financial crisis which is regarded as the worst financial crisis since the Great Depression in the 1930s. Most recently Moody's was fined $15 million as reported by international news outlets over their lack of transparency and questionable ratings.