Ill-Founded and Ill-Timed Rating Action by Fitch Ratings amidst the Worst Global Public Health Crisis for Decades
Financial News: The Government of Sri Lanka finds the decision of the Fitch Ratings to revise the country ratings to ‘B-‘ from ‘B’, illogical and ill-timed and wishes to categorically disagree with the assessment of risks for Sri Lanka.
Their assessment shows rush to judgment and exposes prejudicial nature, at a time when the whole world is grappling with a global health crisis. It is noteworthy that Fitch Ratings acted in a similar fashion towards the latter part of 2018, despite authorities’ insistence that the strength of institutions in Sri Lanka warrants holistic assessment before rushing to initiate a rating action.
In contrast to the experience of many other countries, the Government would like to stress that in Sri Lanka, number of proactive measures are being implemented from multiple spheres and have already helped contain the spread of the COVID-19 outbreak to a great extent.
Government has already initiated measures to bring normalcy across the major parts of the country. This would allow further easing of containment measures by end of the second quarter, enabling domestic economic activity to pick up in the second half of 2020. Accordingly, a more realistic growth projection is positive but low growth in 2020, which would partly benefit from the lower base prevailed in 2019.
On the fiscal side, Fitch Ratings grossly overstates the fiscal deficit in 2020 and the resultant impact of government debt by ignoring the prudent measures taken by the Government to curtail expenditure, and the impact of the delayed government Budget towards the second half of 2020, thereby limiting the fiscal space for additional expenditure for this year.
Further, Fitch Rating’s assessment completely ignores the nonacceleration of financing costs for the Government financing, in fact financing cost from both domestic and external sources have markedly come down so far during 2020. Government has taken proactive measures in mobilising funds from multiple sources of market based and official sources of financing to effectively improve terms and conditions of financing.
Given volatile global market conditions and financial market panic, the issuance of an international bond by the Government may not anticipated in the near term. The focus of financing will be to further explore bilateral and multilateral sources strategically to benefit both risk and cost considerations. Access to international bond markets will be considered not only for financing purposes but also for liability management initiatives.
Instead, it could resort to official sources from bilateral and multilateral means of financing which include the IMF rapid financing instrument, swap facilities with friendly central banks, arrangements of syndicate financing and creating
spaces within already contracted arrangements at competitive terms and conditions in the form of upsizing the facilities and aligning credit lines. In view of the above, and together with largely the muted external pressures as reflected in a relatively strong external buffers, and the robust domestic financial system, which maintains above average capital and liquidity buffers would help to withstand any near term shocks that may arise from the ongoing COVID-19 Pandemic.
Accordingly, the Government wishes to assure that it would closely monitor the developments in the economy and take necessary measures to bring normalcy to the economy in the backdrop of COVID-19 Pandemic as already seen with containment measures and gradually opening up the regions. Further, the Government will remain vigilant in assessing the economic impacts of the domestic and external environments, and introduce timely proactive measures to honor all its obligations while safeguarding interests of all stakeholders, including external investment partners.