Business

Ill-timed and unacceptable rating action by Moody’s renews concerns of subjectivity – CBSL

Published

5 years ago

2021/10/29

A recent rating action by Moody’s Investors Service (Moody’s) on the Sri Lankan economy reflects, among other things, “serious governance weaknesses of such agencies, where they systematically overlook positive developments and expectations in emerging economies, but attribute much greater weight to downside risks. The ill-timed and unacceptable rating action by Moody’s renews concerns of subjectivity, the CBSL said in a statement.

Extracts of the statement:

The Government of Sri Lanka (GOSL) wishes to express strong displeasure on the recent assessment by Moody’s Investors Service (Moody’s) that led to the rating action, after being placed under review for downgrade three months ago in a similar fashion. Once again, Moody’s irrational rating action with regard to Sri Lanka comes a few days before a key event, namely the announcement of the Government Budget for 2022, and this apparent hastiness and the view expressed during discussions with Moody’s analysts that the nature of the Budget is irrelevant to the financing plans of the Government clearly demonstrates the lack of understanding of such analysts.

It also reflects serious governance weaknesses of such agencies, where they systematically overlook the positive developments and expectations in emerging market economies, but attribute much greater weight to downside risks. Moody’s assessment has also failed to take into account the latest developments in strengthening the country’s external position through an array of measures, some of which have already yielded intended outcomes, as announced by the Central Bank of Sri Lanka (CBSL) on 26 October 2021. Moreover, the assessment exposes the rating agency’s ignorance on the well-established political stability within a democratic setup, when it claims about “governance weaknesses” and “challenging domestic political environment”, and its obvious insensitivity to the challenges faced by a country that is recovering from adverse external events without bringing pain to investors who have stood by Sri Lanka during various difficulties that the country has undergone in the past.

In addition to the six-month strategy articulated in the Road Map presented by the CBSL on 01 October 2021, Moody’s assessment has failed to recognise the medium to long term funding arrangements that are being finalised with various bilateral sources, which are due to be materialised in the near term. They include, among others, credit lines of several billions of USD from India and the Middle Eastern counterparts to procure petroleum; an arrangement for a large forex loan from a Middle Eastern nation as a bilateral long-term loan, and the proposals received for the syndicated loan arrangement that are being evaluated at present. In addition, a substantial amount of funds is expected from the already lined-up prioritised project loan related inflows to the Government. The recent discussions on bilateral currency SWAP arrangements with several central banks are also expected to provide the country with additional support in the near term.

Without considering such cashflows, any assessment on the repayment capacity of the Government carries prejudice. Rating action based on such biased assessment is unfair and detrimental to the country’s prospects, as Sri Lanka is emerging strongly from the adverse effects of the COVID-19 pandemic. Needless to say, such action by an international rating agency calls into question the validity of its advice to the investor community. Nevertheless, it is clear that international investors have continued to put faith in Sri Lanka’s plans for recovery, as repeatedly reflected in their preference to hold Sri Lanka’s International Sovereign Bonds (ISBs) to maturity, despite claims by Moody’s about a heightened risk of default by Sri Lanka.

The GOSL is in the process of preparing its Budget for the forthcoming year to be presented on 12 November 2021 with economic activities returning to near normalcy, and the country is already experiencing strong signs of revival of tourism and other activities that generate non-debt creating foreign currency inflows, including the monetisation of under-utilised non-strategic assets. This untimely rating decision taken prior to the Budget shows that Moody’s has not taken all the relevant information to form its assessment of the country’s performance and the expected path, into account. Even a layman would recognise that the Budget is an important statement for a country as it sets the tone for policy initiatives and structural reforms which could help alleviate the external challenges and improve fiscal settings in the near to medium term. Legitimacy of financing, in the form of an Appropriation Act, includes all foreign financing with a clear direction of the fiscal path. Therefore, it is surprising that Moody’s fails to provide due consideration to the forthcoming Budget, disregarding the vital information that would be released with the announcement of the Budget, in arriving at its rating action.

Such action by Moody’s is not new to Sri Lanka since Sri Lanka has experienced similar rating action by Moody’s several times in the past as well. For instance, Moody’s placed Sri Lanka on review for downgrade on 17 April 2020 right at the onset of the COVID-19 pandemic and just after the Government signed a Foreign Currency Term Financing Facility (FTFF) with China Development Bank (CDB), hindering the implementation of the arrangement and delaying fund receipts. The downgrade was effected on 28 September 2020, just ahead of the ISB maturity in October 2020. Further, Moody’s placed Sri Lanka under review for downgrade on 19 July 2021 whilst the CBSL was finalising a currency SWAP with the Bangladesh Bank and was about to repay a maturing ISB. Such questionable action generates credibility considerations as to whether Moody’s actions are driven by economic considerations only.

The GOSL and the CBSL are closely engaging with all stakeholders, including the international investor community. Such engagements have helped clear any doubts of investors on the Government’s willingness and the ability to honour all upcoming debt service obligations, as it has done throughout history. The Sri Lankan economy has demonstrated strong signs of broad-based recovery, with a real GDP growth of 8.0 per cent in the first half of 2021. The vaccination drive is progressing at full strength, covering over 60 per cent of the population with both doses and almost 100 per cent of the population over 30 years, thus providing confidence of a strong rebound in economic activity in 2022. With the revival in tourism and the fruition of efforts to strengthen foreign exchange earnings through merchandise exports, exports of services, worker remittances, as well as domestic and foreign investments, the medium term growth path is likely to be robust. Improving performance of merchandise and trade in services in a fairly short period of time has shown the economy’s ability to reach its potential despite misplaced fears raised by Moody’s. It is deeply disappointing that Moody’s seems to be attempting to derail this potential of the country by downgrading Sri Lanka’s rating based on a static methodology, which is irrational, particularly at the time of a global pandemic. The Government’s commitment towards fiscal consolidation through expenditure rationalisation would complement the gradual rise in government revenue with normalising activity, thereby narrowing the fiscal deficit, that has not been recognised.

Moody’s. The pro-growth reforms implemented by the Government has laid the foundation for a domestic production led export-oriented economy over the medium term, despite some adjustment costs in the transition. Ignoring such ability and commitment of the Government has led to ill-informed conclusions by Moody’s.

Against this backdrop, the Government wishes to re-assure all stakeholders, including the international investor community, that Sri Lanka remains committed to honouring all forthcoming obligations in the period ahead. The Sri Lankan authorities welcome direct engagement with investors and invite investors for regular one-on-one discussions without being distracted by such unfounded announcements by external agencies.

All News Advertisement

Business

Sri Lanka educates women but keeps many out of work, ADB warns

Published

21 hours ago

2026/06/5

Thilina Walpola

Shannon Cowlin - ADB Country Director for Sri Lanka

Sri Lanka has one of the most educated female populations in South Asia, yet only about one in three women participates in the labour force, making female workforce participation among the lowest in the region and leaving a significant source of economic growth untapped.

That paradox took centre stage at a knowledge forum organised by the Asian Development Bank (ADB) in Colombo on June 3, where government officials, labour authorities, academics and private-sector leaders examined the deep-rooted barriers preventing women from fully participating in the economy and explored reforms needed to unlock their economic potential.

Opening the event, ADB Country Director for Sri Lanka Shannon Cowlin said the issue extends beyond gender equality and has become a critical economic challenge for a country seeking sustained growth and inclusive development.

“Empowering women to participate fully in the labour force is not only a matter of equality; it is essential for inclusive economic growth and poverty reduction in Sri Lanka,” she said.

The forum, held under ADB’s Serendipity Knowledge Programme (SKOP), focused on findings from a recent ADB-supported study exploring the factors behind Sri Lanka’s persistently low female labour force participation.

Cowlin noted that despite notable progress in education and human development, Sri Lanka continues to lag behind on measures of gender equality and women’s economic participation. She said multiple studies have shown that the factors shaping women’s labour force participation are layered, interconnected and multidimensional.

According to the study, many women remain concentrated in informal, low-paid and insecure employment with limited access to social protection and few opportunities for career advancement. Social and cultural expectations continue to place primary caregiving responsibilities on women, often restricting their ability to pursue careers or remain in full-time employment.

The lack of affordable childcare services, unequal access to digital skills and technology, concerns over workplace safety, sexual harassment and inadequate transport options were identified as major obstacles preventing women from entering or remaining in the workforce.

“These are complex challenges that require action from all stakeholders – government, development partners, the private sector, civil society and academia,” Cowlin said.

She stressed that improving women’s labour force participation would require more than isolated policy interventions, calling instead for structural transformation, stronger infrastructure and care services, progressive workplace practices and broader societal changes that improve women’s mobility, safety and economic agency.

The event featured a presentation by Professor Dileni Gunawardena of the University of Peradeniya, who shared findings from ADB’s study on female labour force participation, followed by a panel discussion involving representatives from the International Labour Organisation, the Department of Labour, MAS Holdings and John Keells Holdings.

Panelists discussed measures to improve the enabling environment for women, including greater investment in the care economy, expanded childcare facilities, enhanced skills development, creating safe, supportive workplaces and career pathways for upward mobility.

Participants agreed that increasing women’s participation in the workforce is not merely ‘a nice to have’ but an economic necessity, particularly as Sri Lanka seeks to accelerate recovery, boost productivity and achieve more inclusive growth.

The ADB said Sri Lanka’s economic recovery presents a unique opportunity to address long-standing structural barriers facing women and to build a more inclusive labour market that fully utilises the country’s human capital.

By Sanath Nanayakkare

Business

ComBank offers exclusive financial solutions to the ‘Guardians of the Skies’

Published

21 hours ago

2026/06/5

Thilina Walpola

Hasrath Munasinghe, Chief Operating Officer of Commercial Bank and Air Vice Marshal Rajinth Jayawardena, Director General Welfare of the SLAF exchange the agreement in the presence of representatives of the two organisations.

Reinforcing its commitment to those who serve the nation, the Commercial Bank of Ceylon has entered into a Memorandum of Understanding with the Sri Lanka Air Force (SLAF) to introduce a comprehensive suite of concessionary financial facilities for its officers and other ranks.

The partnership, unveiled in a year that marks the 75th anniversary of the Air Force, which was founded in March 1951 as the Royal Ceylon Air Force, reflects a shared recognition of the critical role played by the SLAF as the steadfast ‘Guardians of the skies,’ entrusted with safeguarding the country’s security and sovereignty.

Under the terms of the agreement, Commercial Bank will extend a range of specially tailored financial products to SLAF personnel, including personal loans, leasing facilities, housing loans and credit cards. These facilities will be offered at concessionary interest rates, alongside concessions on documentation charges, enabling Air Force personnel to access financial support on more favourable terms.

The Bank said the initiative is part of its continuing efforts to deliver best-in-class lending solutions that are both accessible and responsive to the diverse needs of its customers. By offering attractive and affordable repayment structures, the scheme is designed to empower SLAF officers and other ranks to meet their personal financial requirements with greater ease and flexibility.

A key feature of the programme is the ability for beneficiaries to align repayments with their income patterns, ensuring that the facilities remain practical and sustainable over the long term. This flexibility, combined with preferential pricing, is expected to make a meaningful difference to the financial wellbeing of Air Force personnel and their families.

Business

Treasury Bill rate hike compounds stock market volatility

Published

21 hours ago

2026/06/5

Thilina Walpola

The CSE was extremely volatile yesterday mainly due to external and internal negative factors.

‘The escalation of the war situation in West Asia and the proposed tariff hike on Sri Lanka’s exports to the US by the Trump administration are worsening Sri Lanka’s economic woes. Further, the government’s decision to increase the Treasury Bill rate has also created some uncertainty in the market, stock analysts said.

The All Share Price Index was up by 249.83 points, while the S and P SL20 rose by 67.61 points. Turnover stood at Rs 2.79 billion with 11 crossings.

Companies that mainly contributed to the turnover by way of crossings were: Chevron Lubricants 1.5 million shares crossed to the tune of Rs 294 million and its shares traded at Rs 196, TJ Lanka 2.9 million shares crossed for Rs 90.8 million; its shares traded at Rs 31, Citizens Development Business Finance 2.5 million shares crossed to the tune of Rs 80.2 million; its shares traded at Rs 32.50.

ACL Cables 634,248 shares crossed for Rs 60.9 million; its shares traded at Rs 96, CCS 438,000 shares crossed to the tune of Rs 57.4 million; its shares traded at Rs 131, Overseas Realties 991,500 shares crossed for Rs 49.6 million; its shares traded at Rs 50 and Access Engineering 653,000 shares crossed to the tune of Rs 49.3 million; its shares sold at Rs 75.50.

In the retail market companies that mainly contributed to the turnover were; Dialog Rs 133 million (3.2 million shares traded), Seylan Bank (Non-Voting) Rs 110 million (1.7 million shares traded), Colombo Dockyard Rs 96.8 million (751,548 shares traded), Ceylinco Holdings (Non-Voting) Rs 77.5 million (516,000 shares traded), Sampath Bank Rs 74.2 million (530,000 shares traded), JKH Rs 74 million (3.7 million shares traded) and LMF Rs 65 million (781,000 shares traded). During the day 123 million share volumes changed hands in 26272 transactions.

It is said that the manufacturing sector, especially Chevron Lubricants and several other firms performed well, while the banking and financial sector performed too.

Yesterday the rupee was quoted flat at Rs 334.50/335.50 to the US dollar in the spot market on, unchanged from the previous day’s close, dealers said, while bond yields were broadly steady.

The telegraphic transfer rate for Sri Lanka’s rupee against the US dollar was Rs 330.50 buying, Rs 339.50 selling; euro was Rs 381.1884 selling, Rs 395.1054 buying; and the pound Rs 442.6620 buying Rs 456.7076 selling.

A bond maturing on 01.08.2030 was quoted at 12.12/20 percent, down from 12.15.25 percent.

A bond maturing on 15.06.2034 was quoted at 13.12/20 percent, down from 13.15/25 percent.

A bond maturing on 15.03.2035 was quoted flat at 13.15/25 percent.

By Hiran H Senewiratne