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Govt. changes course on engaging rating agencies

23 Jul 2021

  • Departure from Finance Ministry’s earlier combative stance 
  • Basil instructs Cabraal to come up with a strategy 
  • Statement follows Moody’s decision to review SL
By Imsha Iqbal At a time when Moody’s Investors Service has decided to review Sri Lanka’s foreign currency long-term issuer and senior unsecured debt ratings for downgrade, Minister of Finance Basil Rajapaksa yesterday (22) stated that there is a necessity to have a mechanism in order to build trust amongst international rating agencies on the economic development in the country. As such, State Minister of Money, Capital Market, and State Enterprise Reforms Ajith Nivard Cabraal was advised on creating a strategy focusing on attracting investors and building trust in terms of economic development amongst credit rating agencies as well as within the business community, in the context of Sri Lanka in comparison to the other countries in the world. Rajapaksa’s approach towards rating agencies seems somewhat different to the previous approach of the Ministry of Finance. Last year, Cabraal requested foreign investors not to be dissuaded by the recent unwarranted rating downgrade and the erroneous analysis published recklessly by Moody's Investors Service, but to be guided by improving economic conditions. “We are advising them (foreign investors) not to be dissuaded by the recent ‘unwarranted’ rating downgrade. Because every time they had acted on some of those downgrades, particularly in the case of Sri Lanka, many people have lost money. They have reacted to those downgrades, sometimes even sold off their positions, and later on they had to buy those same positions at a much higher price,” the State Minister said whilst addressing a media briefing, which was followed by him making similar comments at multiple other occasions.  The Minister of Finance made this statement during a meeting that was convened at the Ministry premises. The meeting was also attended by Minister of Labour Nimal Siripala de Silva, Minister of Trade Bandula Gunawardana, Minister of Plantation Dr. Ramesh Pathirana, Minister of Tourism Prasanna Ranatunga, Minister of Energy Udaya Gammanpila, parliamentarians Prof. Ranjith Bandara and B.Y.G. Rathnasekara, Central Bank Governor Prof. W.D. Lakshman, CBSL representatives, and officials from the Ministry of Finance. Moody’s Investors Service announced on Monday (19) that the Government of Sri Lanka is placed under review for downgrade for its foreign currency long-term issuer and senior unsecured debt ratings of Caa1. Issuing a statement, the rating agency said: “This assessment reflects governance weaknesses in the ability of the country’s institutions to take measures that decisively mitigate significant and urgent risks to the balance of payments.” However, on the same day, the Ministry of Finance also issued a statement, noting: “Moody’s action could create uncertainty among investors who have kept faith in Sri Lankan ISBs and other investments. As experienced in the past, such undue uncertainty created by the rating agency could lead to price volatilities in the market for ISBs and other investments. In any case, the GoSL (Government of Sri Lanka) has taken all measures to repay the upcoming ISB maturity of $ 1,000 million due in end-July.”


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