Moody's Investors Service ("Moody's") has today downgraded Sri Lanka's ratings to B2 from B1 and changed the outlook to stable from negative.

"The decision to downgrade the rating to B2 is driven by Moody's view that ongoing tightening in external and domestic financing conditions and low reserve adequacy, exacerbated most recently by a political crisis which seems likely to have a lasting impact on policy even if ostensibly resolved quickly, have heightened refinancing risks beyond levels anticipated when the rating agency affirmed the rating at B1 with a negative outlook in July. Moody's projections include a slower pace of fiscal consolidation than assumed in July to reflect disruption to fiscal policy implementation in a period of political turmoil," Moody's says. 

It also added, "The stable outlook denotes balanced credit risks at the B2 rating level. Moody's expectation is that, despite the current political crisis, any future government will remain broadly focused on implementing important fiscal, monetary and economic reforms that would strengthen the credit profile over the medium term. However, Moody's assessment is that the government's debt refinancing will remain highly vulnerable to sudden shifts in investor sentiment in a period of further tightening in financing conditions and political and policy uncertainty, with limited buffers to face such risk."

Concurrently, Moody's lowered the local-currency bond and deposit ceilings to Ba2 from Ba1. The foreign-currency bond ceiling was lowered to Ba3 from Ba2 and the foreign currency deposit ceiling was lowered to B3 from B2."