Moody's Investors Service affirmed the B1 rating of three Sri Lankan banks, the Bank of Ceylon (BOC), Hatton National Bank Ltd. (HNB) and Sampath Bank PLC, whilst maintaining the negative outlook, citing continued external vulnerability risk.
"The negative outlook reflects Moody's view that Sri Lanka's credit profile is dominated by the government's and country's elevated exposure to refinancing risk. Sri Lanka could face significantly tighter external refinancing conditions at some point during the next five years, which would quickly lead to much weaker debt affordability, especially if the currency were to depreciate as a result," Moody's said in a statement today.
"With a persistently high debt burden, weak debt affordability, large borrowing needs and low foreign reserve adequacy, Sri Lanka's vulnerability to a shift in domestic and external financing conditions is high."
"In particular, every year between 2019 and 2023, the government will need to make principal payments on external debt of around $3.5 billion per year (about $17 billion overall), in addition to financing part of the budget deficit externally. For the economy as a whole, part of the current account deficit corresponds to private sector activities also financed externally. Moody's expects the overall current account deficit to be around 2.5% of GDP in the next few years, or around $2.6 billion on average per year."