Pakistan, Sri Lanka most exposed to shocks, Moody's says


  • Economy
  • Thursday, 12 Sep 2019

While Moody’s forecasts and ratings generally assume relatively stable financing conditions, to gauge exposure to financing pressure beyond Moody’s base case, the rating agency has developed a stress test assuming a severe but plausible shock.

KUALA LUMPUR: Pakistan (B3 negative) and Sri Lanka (B2 stable) are among the economies which are particularly exposed to a shock due to tighter financing conditions, Moody's Investors Service said.

It said on Thursday its stress tests showed other countries which were also exposed to such a shock included Jamaica (B3 positive), St. Vincent & the Grenadines (B3 stable), Tunisia (B2 negative), Egypt (B2 stable), Ghana (B3 stable), Angola (B3 stable).

“Fragile investor confidence amid a slowing global economy, ongoing US-China tensions, and political risks in the Middle East and elsewhere increase the risk of a tightening in financing conditions, with B-rated sovereigns in Asia Pacific, the Middle East and North Africa (MENA) and Latin America most exposed, ” Marie Diron, a managing director in Moody’s Sovereign Risk Group said.

“Unlike in 2018, when most emerging and frontier markets faced a sharp tightening in financing conditions, now, with major global central banks likely to maintain accommodative monetary policy, any shock is likely to be market-specific, triggered by external or domestic developments, and exacerbated by low policy credibility, ” she said.

While Moody’s forecasts and ratings generally assume relatively stable financing conditions, to gauge exposure to financing pressure beyond Moody’s base case, the rating agency has developed a stress test assuming a severe but plausible shock.

Moody’s has quantified the direct effects of such stress on core credit metrics to determine the most affected emerging and frontier markets.

“Although second-round effects and policy responses would determine the full implications of any shock, the results of our stress tests highlight a range of exposure among lower-rated sovereigns, as well as among those further up the rating scale, ” Diron added.

The countries most exposed would see the sharpest deterioration in credit metrics when stressed due to weak debt affordability, reliance on foreign-currency borrowing, and thin reserve coverage of external debt payments.


   

Across The Star Online


Air Pollutant Index

Highest API Readings

    Select State and Location to view the latest API reading

    Source: Department of Environment, Malaysia