Fitch drops Le­sotho’s cur­rency rat­ing

Lesotho Times - - Business - Bereng Mpaki

GLOBAL rat­ing agency, Fitch Rat­ings, has down­graded Le­sotho’s long-term lo­cal cur­rency (LTLC) Is­suer De­fault Rat­ing (IDR) from ‘‘BB-’ to ‘B+’ after the agency ad­justed its rank­ing cri­te­ria.

In a re­port is­sued last week, Fitch also states Le­sotho’s out­look was sta­ble. Fitch’s in­ter­na­tional credit rat­ings re­late to ei­ther for­eign cur­rency or lo­cal cur­rency com­mit­ments and in both cases, as­sess the ca­pac­ity to meet th­ese com­mit­ments us­ing a glob­ally ap­pli­ca­ble scale.

The lo­cal cur­rency rat­ing meas- ures the like­li­hood of repayment in the cur­rency of the ju­ris­dic­tion of the coun­try. On the other hand, the for­eign cur­rency rat­ings con­sider the pro­file of the is­suer or note after tak­ing into ac­count trans­fer and con­vert­ibil­ity risk.

‘BB’ rat­ings in­di­cate an el­e­vated vul­ner­a­bil­ity to de­fault risk, par­tic­u­larly in the event of ad­verse changes in busi­ness or eco­nomic con­di­tions over time. The mod­i­fiers ‘+’ or ‘-’ may be ap­pended to a rat­ing to de­note rel­a­tive sta­tus within ma­jor rat­ing cat­e­gories.

‘B’ rat­ings in­di­cate that ma­te­rial de­fault risk is present, but a lim­ited mar­gin of safety re­mains. It means that fi­nan­cial com­mit­ments are cur­rently be­ing met but the ca­pac­ity for con­tin­ued pay­ment is vul­ner­a­ble to de­te­ri­o­ra­tion in the busi­ness and eco­nomic en­vi­ron­ment. The rat­ing agency changed its sov­er­eign rat­ing cri­te­ria on the as­sess­ment of LTLC rat­ings to be in line with the longterm for­eign cur­rency (LTFC) rat­ings. The short-term lo­cal cur­rency (STLC) IDR was af­firmed at ‘B’ sta­tus with a new short-term for­eign cur­rency (STFC) IDR rat­ing of ‘B’ be­ing as­signed to Le­sotho.

“The down­grade of Le­sotho’s LTLC IDR to ‘B+’ re­flects the fol­low- ing key rat­ing driver and its weight: HIGH — In line with the up­dated guid­ance con­tained in Fitch’s re­vised Sov­er­eign Rat­ing Cri­te­ria dated 18 July 2016, Le­sotho’s credit pro­file does not sup­port a notch­ing up of the LTLC IDR above the LTFC IDR,” notes the agency.

“This re­flects Fitch’s view that nei­ther of the two key fac­tors cited in the cri­te­ria that sup­port up­ward notch­ing of the LTLC IDR are present for Le­sotho.

“Those two key fac­tors are; strong pub­lic fi­nance fun­da­men­tals rel­a­tive to ex­ter­nal fi­nance fun­da­men­tals; and pre­vi­ous pref­er­en­tial

treat­ment of LC cred­i­tors rel­a­tive to FC cred­i­tors.”

On the short-term for­eign cur­rency rat­ing, the re­port said: “The af­fir­ma­tion of Le­sotho’s STFC IDR at ‘B’ re­flects the fol­low­ing key rat­ing driver: — In line with the up­dated guid­ance con­tained in Fitch’s re­vised Sov­er­eign Rat­ing Cri­te­ria dated 18 July 2016, Le­sotho’s STFC IDR is de­rived from the map­ping to the sov­er­eign’s LTFC IDR of ‘B+’.

“The as­sign­ment of a STLC IDR of ‘B’ to Le­sotho re­flects the fol­low­ing key rat­ing driver and its weight: HIGH The as­sign­ment of the STLC IDR is con­sis­tent with Fitch’s ap­proach to as­sign­ing ST rat­ings by us­ing its Long-term/short-term Rat­ing Cor­re­spon­dence ta­ble to map the STLC IDR from the LTLC rat­ing scale.”

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