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Moody's downgrades Laos
Moody's Investors Service said it lowered the government of Laos' long-term local- and foreign-currency issuer ratings to Caa3 from Caa2 and changed the outlook to stable from negative.
“The decision to downgrade the rating to Caa3 reflects the elevated liquidity and external vulnerability risks that Laos continues to be exposed to and its high debt metrics, together with institutional and governance weaknesses that compound these vulnerabilities. In the face of narrowing financing options, even to meet limited financing needs, Laos's reliance on external and domestic commercial financing will increase, resulting in a higher exposure to market sentiment,” Moody’s said in a press release.
The agency noted the country is suffering from high inflation, currency depreciation, and that material contingent liabilities add risks around obtaining and repaying debt obligations, Moody’s noted. In fact, the Laotian government reported inflation at 12.8% in May up from 9.9% in April and according to the World Bank, the Laotian kip plummeted by about 30% against the U.S. dollar over the year up to April. “These factors all point to a higher probability of default than previously captured at a Caa2 level.”
The outlook is based on the expectation that fundamentals will start to normalize around current levels, allowing default risks to stabilize at levels consistent with a Caa3 rating. “Fiscal and external imbalances as reflected in the structural budget deficit and current account deficit remain contained. Growth prospects are somewhat favorable, as the economy opens up to tourism and the inauguration of the China-Laos railway improves the outlook for trade,” Moody’s said.
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