Fri, 29 Mar 2024 Today's Paper

Debt rollover challenging for FMs amid rising global interest rates: Moody’s

By

13 October 2017 12:44 am - 0     - {{hitsCtrl.values.hits}}

A A A

  • Note of caution comes just days after World Bank casts doubts over SL’s ability to roll 
  • over debt
  • Moody’s says evolving global liquidity conditions pose “key credit challenges” to FMs
  • SL is a low per capita FM with low institutional strengths 

 

Just days after the World Bank said possible plans by Sri Lanka to roll over its commercial debt or international sovereign bonds (ISBs) will be an uphill task come maturity, Moody’s Investors Service this week expressed similar concerns in an environment where global interest rates are rising and liquidity getting tightened.  In a report on frontier markets (FMs) — highlighting the prospects and key risks — Moody’s showed how the FMs in the past have raised commercial US dollar sovereign bonds at relatively favourable rates when the global liquidity conditions were benign. 


But the rating agency pointed out how the evolving global liquidity conditions and rising interest rates now could pose “key credit challenges” to FMs due to elevated debt-servicing costs and liquidity risks. 


According to Anne Van Praagh, Moody’s Managing Director, although “the ability of individual FMs to handle rising interest rates and rollover of commercial debt is differentiated”, she said, “vulnerabilities are highest for those countries where high leverage combines with a constrained ability by domestic policymakers to ease monetary policy and preserve fiscal flexibility”.

Sri Lanka is a FM, which has the key characteristics of low per capita income, relatively fast gross domestic product (GDP) growth, open economy reliant on commodities exports and low institutional strengths. 


Moody’s defines a frontier market as a sub-investment grade country that relies on concessional financing, for example, from international financial institutions, for more than 40 percent of its financing needs.


As a result of the recent higher commercial borrowings, FMs now pay more proportionally in interest payments than emerging markets. 


“In 2016, the FMs’ median interest to revenue ratio was 8.9 percent compared with 7.7 percent for EMs,” said Moody’s adding that it could go further up with the rising global interest rates unless the revenues fail to keep pace.  As concessional borrowings ran dry, Sri Lanka had to tap international capital markets multiple times since 2017 and the country is now in an external debt trap where the state revenue is barely sufficient to service such debt. 


The latest such sovereign bond issue earlier this year raised US $ 1.5 billion. 


According to Moody’s in July, Sri Lanka is due to settle an estimated US $ 13.8 billion in external debt from 2019 to 2022. 


Moody’s meanwhile said the strength of institutions determines a sovereign’s ability to counter negative shocks, such as a rise in global capital costs but in the case of many FMs, weak institutions constrain their ability to buffer against shocks. 


Out of the 36 FMs rated by Moody’s, 75 percent sovereigns are rated in the B1-B3 range. 
Most have weak economic and fiscal fundamentals and weak institutions, suggesting low shock absorption capabilities. 


Meanwhile, out of the 36 FMs, downgrades have dominated upgrades and none has climbed up to investment grade since a sovereign rating was initiated. 


Moody’s has a B1 speculative grade rating on Sri Lanka and its outlook was revised to ‘Negative’ from ‘Stable’ in 2016 due to fiscal and external risks.

 

 

 

 


Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka

  Comments - 0

Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka

Add comment

Comments will be edited (grammar, spelling and slang) and authorized at the discretion of Daily Mirror online. The website also has the right not to publish selected comments.

Reply To:

Name - Reply Comment





Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka

VAT increase: SOUNDs death knell for publishers, readers

Though the Government imposed VAT (Value Added Tax) on vegetables and other e

How female change-makers are driving Sri Lanka’s energy saving platform

Saving energy has become more of a responsibility than a habit in today’s c

A dull Ramadan awaits Muslims amidst the Soaring Cost of Living

In the coming days, Muslims across the world will welcome the Holy Month of R

New wildlife underpass to curtail HEC

As of February 2024, Sri Lanka lost another 38 elephants as a result of the H

MIRROR CRICKET

More