Moody’s on Monday downgraded Sri Lanka to Ca from Caa2 following the government’s suspension of principal and coupon payments on offshore public debt.
The rating agency said the suspension of debt servicing will result in a series of defaults starting with the first coupons due on April 18, which are unlikely to be cured during the grace period.
It expects material private sector creditor losses from an eventual debt restructuring which will exceed the levels of loss consistent with a Caa2 rating.
“This assessment further reflects governance weaknesses in the ability of the country’s institutions to take measures that decisively address the very low adequacy of foreign exchange reserves and very weak debt affordability, thereby contributing to loss given default, at least in line with precedents by other defaulting sovereigns,” said Moody’s.
This is followed last week’s downgrades of Sri Lanka from S&P and Fitch to CC and C, respectively. Fitch also demoted a US$175m government-guaranteed 7% unsecured bond due 2024 issued by SriLankan Airlines to C from CC to reflect the guarantor’s downgrade.
Meanwhile. Fitch Ratings slashed Sri Lanka’s economic growth in 2022 to mere one percent amid the expected deceleration in demand, due to tightening monetary policy and the ongoing foreign exchange troubles, which have caused massive shortages of key commodities and medicines.