Sri Lanka - Credit Rating

Antonym · 1 Sri Lanka - Credit Rating Fri Dec 11, 2020 8:46 pm

S&P Global Ratings downgraded Sri Lanka’s sovereign credit rating to CCC+ and assigned a stable outlook today, in part due to the impact of Covid-19, which has narrowed the government's fiscal space and its capacity to generate earnings through sectors such as tourism. The agency explained that with the implementation of expansionary budget measures in Sri Lanka, the country's fiscal position is expected to deteriorate materially over the next few years in the absence of favourable economic and financial conditions. The outlook is stable, reflecting the risks of external deterioration balanced against accommodative policies over the next 12 months.

Antonym · 2 Re: Sri Lanka - Credit Rating Fri Dec 11, 2020 9:08 pm

Antonym

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This means the country and companies will find it expensive to borrow foreign exchange in the international markets, and puts into doubt the country's ability to repay borrowings that are maturing over the next few years.

As a knee jerk reaction, the LKR has already depreciated against the USD and other major currencies (USD 1 = LKR 186.70). This was expected; however, I hope this will not deteriorate much further because essential imports like petroleum would become more expensive.

Companies that produce 'import substitution goods' would be at an advantage because they would be able to produce at a lower cost than imported goods. Depreciation of the rupee is an artificial levy on imported goods.

The Government has already embarked on a path of self-sufficiency by curbing imports. While we cannot be completely isolated from the external world, I believe that the unfolding events point to an increase in stock prices - driven by local investors, low interest rates, and excess liquidity.

Although this seems counter-intuitive, empirical evidence suggests that Sovereign downgrades are found to be associated with an increase in equity returns. What I am saying is that ASI 7,000 is still a possibility this year!

Very Happy

DamithAsian · 3 Re: Sri Lanka - Credit Rating Sat Dec 12, 2020 7:59 pm

DamithAsian

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Despite many rating down gradings there are other options to restore our economy. Therefore lets think positive we can regain.
https://www.youtube.com/watch?v=3lRors4F-Ak
35.20 Minute