Moody's affirms Sri Lanka's ratings at B1

Singapore -- Moody's Investors Service on Thursday affirmed the Government of Sri Lanka's foreign currency issuer and senior unsecured ratings at B1 but maintained the negative outlook.
In a media release, Moody’s said the decision to affirm the rating at B1 reflects Sri Lanka's progress in implementing the planned reform programme, which entails fiscal consolidation and a build-up foreign exchange reserves buffers, ahead of the end of the IMF Extended Fund Facility program in June 2019, along with its moderate per capita income levels, and stronger institutions relative to many similarly-rated sovereigns. 
This is balanced against Moody's expectation that the sovereign's fiscal strength will remain very low and government liquidity and external vulnerability risk will remain rating constraints.
“The decision to maintain the negative outlook reflects Sri Lanka's ongoing high vulnerability to a potential tightening in external and domestic financing conditions, given relatively large borrowing needs, reliance on external funding and still low reserves adequacy,” it said. 
That feature dominates Sri Lanka's credit profile. The government could face significantly tighter refinancing conditions at some point during the next few years, which would quickly lead to much weaker debt affordability and a higher debt burden, especially if the currency depreciated at the same time.
Concurrently, the local-currency bond and deposit ceilings remain unchanged at Ba1. The foreign-currency bond ceiling is unchanged at Ba2 and the foreign currency deposit ceiling at B2, Moody’s said.- ENDS -