Sri Lanka, along with Malaysia and Mongolia, is most vulnerable to direct and indirect effects of sustained capital outflows, Moody's Investors Service said in its report published this week on sovereign risk.
Pointing to high debt levels in a number of Asian countries, the credit ratings agency said, "if they last more than a few weeks, capital outflows or lower inflows will correspond to a tightening in domestic financing conditions for many Asian countries."
"For some, [it] could exacerbate difficulties in meeting their current account and external debt payment obligations."
"In most of the region, foreign exchange reserves generally provide coverage for external debt repayments, current account deficits are narrow and government liquidity positions are robust," Moody's said, adding that Mongolia, Pakistan, Maldives, Papua New Guinea and Sri Lanka were particularly likely to face external liquidity challenges.
"Nonetheless, while the direct impact of tighter global financial conditions may be limited, sustained capital outflows or markedly lower inflows pose indirect challenges for economies with already high leverage."
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