Sri Lanka has slipped from being the best performer in Asia’s dollar bond market to the worst, as Colombo struggles with an economic crisis that has been exacerbated by the coronavirus pandemic, reports Bloomberg.
At first Sri Lanka’s securities fell by 15.5% in September and then 20% in October, marking two consecutive months of great losses in the region, according to Bloomberg Barclays indexes. This comes after placing as one of Asia’s top performers in each of the three months through August.
The sharp decline came after Moody’s Investors Service cut Sri Lanka’s sovereign rating, citing risks from coronavirus-induced shock to the economy. The Asian Development Bank predicts the country’s GDP will shrink by 5.5% this year, the biggest contraction since 1951. Whereas the Central Banks forecasts the GDP will shrink 1.7 percent this year and recover to a 5.0% growth in the following year.
The resurgence of COVID-19 cases has slowed the country’s momentum after a cluster of COVID-19 cases were discovered at a wholesale fish market in Peliyagoda and a garment export factory in Minuwangoda, Western Province.
“Emerging markets are more vulnerable than developed countries to the impact of Covid-19,” said A.S. Thiyaga Rajan, a senior managing director in Singapore at Aquarius Investment Advisors Pte. “Sri Lanka, being highly dependent on tourism for its economic growth, is one such nation extremely susceptible to the pandemic’s shock.”
Bonds fell heavily last week following US Secretary of State Mike Pompeo's meeting with Sri Lankan president Gotabaya Rajapaksa, where he scrutinised the island's economic links with China as well as Colombo's human rights record.
“The reality with Sri Lanka is that it has very high debt levels and a very large deficit, but they are not in an IMF programme and nor is the government willing to do what it takes to make the debt sustainable,” said Kevin Daly at Aberdeen Standard Investments
“So the market is looking at the credit and thinking something has got to give,” Daly went on to say.
