Debt rollover challenging for FMS amid rising global interest rates: Moody’s
Just days after the World Bank said possible plans by Sri Lanka to roll over its commercial debt or international sovereign bonds (ISBS) will be an uphill task come maturity, Moody’s Investors Service this week expressed similar concerns in an environment where global interest rates are rising and liquidity getting tightened. In a report on frontier markets (FMS) — highlighting the prospects and key risks — Moody’s showed how the FMS in the past have raised commercial US dollar sovereign bonds at relatively favourable rates when the global liquidity conditions were benign.
But the rating agency pointed out how the evolving global liquidity conditions and rising interest rates now could pose “key credit challenges” to FMS due to elevated debt-servicing costs and liquidity risks.
According to Anne Van Praagh, Moody’s Managing Director, although “the ability of individual FMS to handle rising interest rates and rollover of commercial debt is differentiated”, she said, “vulnerabilities are highest for those countries where high leverage combines with a constrained ability by domestic policymakers to ease monetary policy and preserve fiscal flexibility”.