Realities of lowering Sri Lanka credit rating

The suspicion that Moody lowered our credit rating to ‘junk status’ was for political reasons, that is to blunt the government’s China sympathetic foreign policy, is nonsense. These agencies don’t work like that. There are reasons, whether we agree or not, that these agencies think rational – I use the plural because Standard & Poor and Fitch will follow suit. Since I discard a political motive, I would like to probe what these “rational” grounds may be. Caa1 is defined as speculative of poor standing and subject to very high credit risk.

There could be a fear that impending constitutional changes may lead to internal confrontations, and will not be conducive to international businesses, since a liberal ethos is now considered sine qua non for global business. Gone are the days when capital loved hard regimes. I will not probe this further, since too much has appeared in the media about 20A and so on. The Finance Ministry has reacted to Moody’s that the economy has improved in the last two months (remittances rising to pre-COVID levels, sharp reduction in imports, fall in balance of payments deficit from a feared $8 billion to $6 billion and enhanced activity in the domestic economy), but Moody’s seems to have dismissed these as short-term gains. The medium-term outlook, especially looming fiscal deficits and the employment picture are worrisome. A one-tier downgrade to B3 was perhaps unavoidable, but this two-tier downgrade is quite a blow.

But rating agencies have a two-sided responsibility to investors and debtors, and in this context the inability to create conditions for international private business partners, suppliers and buyers and professionals to interact with local counterparts is a problem. The failure to reopen Colombo airport is a sign of deep trouble. Nowhere else in the world has a country been de facto sealed off and its airports closed for seven months. We have only one real airport; Mattala is irrelevant for business travellers. Shrewd rating agencies and financial houses have taken note of these inconveniences, and know that the economy cannot return to an even keel until normal travel facilities are restored. COVID has been under control in Sri Lanka since July; in August we even successfully held a general election! So, what’s up! Why aren’t the usual lot, Singapore Airlines, Thai, Malaysian and Cathay flying in daily? They do not fly in at all; just QATAR has a daily flight.

Things are made worse by sending out the entirely wrong message. The story now is about restarting tourism, not opening for business! The plan is that tourist arrivals will be allowed at Mattala, only, in groups of 10 to 50, be quarantined for 14 days and then visit permitted sites. Of course, there will be no takers; any fool should be able to see that! The economic stupidity of our administrators is that non-existent tourists, not professional and business travellers, who will never agree to use Mattala, will be vainly sought. In the event neither type will come till BIA is opened.

Concessions to be offered to airlines willing to fly to Mattala are: Full waiver of flight disembarkation and embarkation levy, discounts on ground handling, free-of-charge landing and take-off, fuel at discounted prices and discounts on air tickets for migrant workers who use Mattala. Rating agencies have surely sensed this dilettantism. More important is the frame of mind of authorities who have not even thought of reopening the country for businessmen and professional travellers. Don’t blame the Rating Agencies for the thoroughly unprofessional way in which our Ministers and Ministry Secretaries are pretending to do their job.

A.K. DAVID

Dehiwala