Economic, fiscal &’s Ratings

According to Moody’s Ratings, South and Southeast Asian countries have been severely impacted by several tropical cyclones and unusually heavy monsoon rains since mid-November, leading to widespread flooding and landslides and the tragic loss of hundreds of lives.

Moody’s assesses that the economic, fiscal, and credit impact of this disaster is likely to be most material for Sri Lanka (Caa1 stable).

While the credit implications for other affected governments will be more limited, the severity of the flooding highlights broader credit vulnerabilities to physical climate risks over the longer term across the region, especially considering limited natural catastrophe insurance coverage.

Sri Lanka, along with Indonesia (Baa2 stable), the Philippines (Baa2 stable), and Vietnam (Ba2 stable), all have high credit exposure to physical climate risks. However, Moody’s specifically points out that Sri Lanka has much weaker fiscal capacity to increase its resilience than its regional neighbors.

Effective governance is key in mitigating these risks, and often correlates with lower physical climate risk vulnerability. Moody’s notes that both Sri Lanka and Vietnam have governance issuer profile scores of 4, indicating high credit exposure to governance risks, despite some recent reforms.