2 December, 2021

Blog

Sri Lanka Coerced Again Under Rating Threats?

By Rusiripala Tennakoon –

Rusiripala Tennakoon

Some reports and statements serve to be more coercive than serving any positive purpose. It is best to consider the Circumstances, prevailing conditions and any plans ahead for overcoming adverse situations while commenting or making references in judgement which cause damages in consequence. Specially when such comments, views and observations are about a country’s sovereign status this becomes extremely important and warrant fair play and natural justice which involves: adequate notice, fair hearing and no bias.

We are all moved about the announcement by Moody’s rating agency about the Sri Lanka’s credit ratings recently for a second time consecutively. While we respect their professional involvement in the matter we are compelled to bring out some versions that we feel have been overlooked in this exercise. There cannot be any difference in opinion about the highly unpredictable circumstances the whole world is facing due to the current Global Pandemic. All are passing through a stage where no one can foresee how things will change and the future effects of some of these. Even the more established economies are facing great difficulties and have resorted to corrective and adaptive measures.

Sri Lanka is no exception and even worst affected because of the state of our Economy. We depend on many external factors and influences in our economic affairs and any slight variation or a directional change in those cause enormous challenges. Invariably course corrections take time and a planned approach addressing the socio-economic culture prevailing in a democratic set up like ours. WE are going through such a stage facing many issues. Any temporary set backs experienced would have to be assessed in such a backdrop.

What ever the star readers foretell, so far we have not defaulted in any of our obligations. We have several untouched openings in the event of any unsurmountable situation. Hence what is important is to assess our situation in the context of what our experiences have been and the available avenues before us. It is regrettable that negative predictions become harmful to the hard choice of resolutions we are resorting to. The timing of exposures which do not address our past experiences, current engagements etc. could be damaging. Fortunately the factual situation is not that gloomy. Therefore it would be appropriate for us to examine the ongoing situation despite these coloured paintings.

The market, on the other hand, seems to have completely ignored Moody’s pessimism. Sri Lanka’s Sovereign Bond yields, which should have reacted to the downgrade adversely, have not jumped at all. In fact, they all have reduced from the levels observed before the downgrade! Perhaps the market has taken due note unlike Moody’s of the strategies and expectations outlined in the Roadmap presented by the Central Bank! Perhaps the market has realised unlike Moody’s that a downgrade before a landmark Budget does not make any sense! Perhaps the market has greater awareness than Moody’s of the imminent recovery of tourism, investment flows and other global activities that will benefit Sri Lanka in the months to come! Perhaps the market now realises how irrelevant rating agencies such as Moody’s have become in this day and age of greater transparency and better ways of debtor-creditor direct communication!

Chart: Sri Lanka’s International Sovereign Bond Yield Rates

It is admirable that our markets are safely adjusted to adopt to domestic conditions and react realistically to external influences. They seem to value the experiences of our authorities of proven capabilities of sailing through worse situations E.g. the defeat of terrorism amidst several hardships. The Governor recently appointed to steer the country out of this mess is looked upon as a capable proven Central banker who will deliver desired results.

Passingly with no prejudices I wish to recall what a senior retired renowned Central bankes mentioned referring to the times when it was decided to go with the Rating Agencies in ealy 2000s; “remember when you choose to deal with mafia you have to be mindful of their atrocities ……..” !

I also wish to state the non-sacrosanctity despite such attribution in the role and determinations by Rating agencies with a quote;

“The Financial Crisis 

Credit rating agencies came under heavy scrutiny and regulatory pressure following the financial crisis and Great Recession of 2007 to 2009. It was believed that CRAs provided ratings that were too positive, leading to bad investments. Part of the problem was that despite the risk, the agencies continued to give mortgage-backed securities (MBSs) AAA-ratings. These ratings led many investors to believe that these investments were very safe with little to no risk.The agencies were accused of trying to raise profits as well as their market share in exchange for these inaccurate ratings. This helped lead to the subprime mortgage market collapse that led to the financial crisis.15

To add fuel to the fire, the agencies’ European sovereign debt ratings were also cause for scrutiny. After the calamity caused by the debt crisis of several European countries including Greece and Portugal, the agencies downgraded the ratings of other nations in the EU.15

Some have argued that regulators have helped to prop up an oligopoly in the credit rating industry, providing rules that act as barriers to entry for small- or mid-sized agencies.16 New rules in the EU have made CRAs liable for improper or negligent ratings that cause damage to an investor”

Investors therefore know how to assess and take necessary safeguards and when?

We request the central bankers to continue to play their role unfettered by untimely comments. WE are a country with many resources envied by others and capable of offering new opportunities to the rest of the world. Patience will take us to the desired goals with proper domestically cooked plans.

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Latest comments

  • 0
    0

    This comment was removed by a moderator because it didn’t abide by our Comment policy.

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    • 3
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      Nathan,
      I feel for you. I do share your opinion, but didn’t want to get edited!

    • 4
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      Moodys is a very powerful body. It is an American creation and will be relied on by all Western financial institutions. Once the report is out no one will make any effort to change it. The report tells the lending bodied about the level of risk involved in getting their money back which increases the expected reward in the form of high interest rates. I believe that even the value of rupee relative to the US dollar will be affected by this report.
      It is also to be noted this report will influence borrowing in dollars than any other currency. But all the Countries including China want to do their transactions in US dollars. It’s such a powerful currency.
      Though there may be an element of arm twisting on behalf of the West, any keen observer of Sri Lankan economy will agree that it’s in the doldrums caused by economic mismanagement.
      It is important for Sri Lanka to ensure that the rupee doesn’t become a junk currency. My best advise to the Rajapaksa regime is to concentrate on the economy and not to pursue the ethnic supremacy policy.

      • 1
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        So, Mr. Rusiri, let’s say you’re right, and Sri Lanka is being coerced by the evil rating agencies for political reasons, not because it has a Finance Minister with barely an OL, an incompetent accountant as Central Bank governor, and a President who believes that anything in a yellow robe is omniscient.
        So, Mr. Rusiri, as in other matters, what’s stopping us from being the first country to leave the UN and the IMF, set up our own rating agency and our own bitcoin currency? Aren’t we a fully independent sovereign country, as many patriots keep reminding us?

  • 3
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    Hi RT,
    I agree with your sentiments.
    Very good, impassionate, critical analysis of rating agencies (RA.
    RA primarily intent protecting ‘proactively’, avoiding legal suit by investors, should there be an inadvertency and the result of the investment turns out, in passing of time goes bad investment based on forecast!
    Understandable.
    Reference, “The Governor recently appointed to steer the country out of this mess is looked upon as a capable proven Central banker who will deliver desired results”!!
    In this respect, Sri Lankans have not yet had sufficient time to forget the episodes last time over, still fresh in our minds. E.G.
    1. Greek Bonds,
    2. Fuel hedging episode,
    3. throwing away of US dollar resources towards the agents in US, with credibility and No attributable results, and
    4. The adventurous, Cricket “World Cup” campaign in the West Indies with a ‘Jumbo’ plane load of activists of unknown repute; ended in no outcome to boast, except own ego trip!
    May I close up by saying APB was well equipped for all situations without external help and did not need anyone else’s assistance for dancers (first and foremost, affinity to “dancers” by APB itself is questionable), including Alfred Duraiappah et all.

  • 3
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    Oh poor Rusiri. Haven’t changed his childhood habits. Blaming others for all his mistakes. Rusiri it is called oppositional defiance. You can either take it or leave it. No one cares two hoots about Lanka. Moody’s, S & P and Fitch have been there for years. The rest of the world goes by their recommendations because countries want to make sure their deposits are safe. Whereas you have government who’s main aim is to borrow, loot, spend lavish and give subsidiary to stay in power. Rusiri you spend your own earnings which is none of others business. But you spend loaned money is everyone’s business. So find another place to get your sob story published. This is not a court for adequate notice, fair hearing and no bias. The rating agencies have heard enough of Cabraaaaal , BJ , Basil and rest of wizards who give a run around for living. Your own financial experts have warned of crisis , what more ?? It is people like you who are responsible for loss of reliability and credibility.

  • 6
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    Mr Rusiripala Tennakoon,

    You are the man for the moment ………. to ride in on a white horse and save the day!

    To hell with Moody’s ……. I won’t believe a word they say …….. any day, I would believe the words of patriots like Mahinda, Gota, Basil, Cabrral ……. When have they ever lied?

    At 35% for our bonds …… I can get Michael Milken interested …….. do you want me to put in a word?

    • 4
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      Excellent!

    • 2
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      Nimal F,
      I cannot think of anyone, who could have said it better and concisely, the manner you have done.
      His would be erstwhile supporter ‘Laksiri’, turned colour like a “Kattussa” (Chameleons), now that the Australian envoy issue has been settled and did not favour his wishful thinking.
      Incidental to, but not directly connected to the issue, I wish to raise the following:-
      Just on that issue SL and Australia relationship, is it ok for a dual citizen or Australian citizen to be the High Commissioner for Sri Lanka in any country? Jokers!!
      “Vasi Paththata Hoiya”!!!

      • 3
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        Mahila,
        ” is it ok for a dual citizen or Australian citizen to be the High Commissioner for Sri Lanka in any country? “
        Apparently it is, at least when Rajapaksas are in power. I’m sure you’ve heard of Jaliya Wickremasekera, a US citizen and former Sri Lankan ambassador in the US,. besides being Gota’s cousin, who is currently being prosecuted in the US for fraud, but trying to get his cousin to grant him diplomatic immunity? How pathetic can this bunch get?

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