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Journalism of Courage
NEW YORK, JUNE 19: Quick on the heels of the announcement of US economic sanctions, international rating agency, Moody8217;s Investors Service on Friday lowered India8217;s foreign currency country ceiling for long-term debt and notes by two notches to Ba2 from Baa3. The foreign currency country ceiling for short-term debt has been downgraded to Not-Prime from Prime-3. Moody8217;s also lowered the long-term foreign currency deposit ceiling to Ba3 from Ba1.
This takes India below investment-grade, indicating a unanimity of outlook with the other major international rating agency, Standard amp; Poor8217;s.
The Samp;P rating for long-term foreign currency issuer credit is BB, one notch below investment grade, and its local currency credit rating is BBB.
In addition, Moody8217;s today assigned first-time ratings of Ba2/NP to the rupee-denominated debt of the government of India. The government of India has issued no foreign currency-denominated bonds in its own name. Accordingly, the downgrade will affect the ratings of thosebonds issued by entities domiciled in India that previously were rated higher than the revised country ceiling of Ba2.
The downgrade follows a warning shot from Moody8217;s in January, when the agency had indicated it would review the rating and assigned a negative outlook for its country ceilings.
Moody8217;s said the downgrades reflect its concerns about India8217;s weakening macro-economic balances, which have become more difficult to correct in a fractious political environment. In particular, the policy framework appears to lack the necessary coherence to quickly address the deterioration in the external trade accounts and public sector finances, it said.
The rating agency said political divisiveness over the last few years has been detrimental to substantive progress on structural reform, and pointed to the fact that a loss of foreign investor confidence has led to net withdrawals of institutional capital in recent months, for the first time since 1991.
The government8217;s restrictions on non-Indianparticipation in the divestment of public sector enterprises and property will make it more difficult to attract foreign capital, which is needed to supplement inadequate domestic savings.
Finally, following India8217;s test explosions of nuclear weapon devices last month, the trade and credit sanctions imposed by the US and other countries are likely to hamper efforts to overcome severe infrastructure constraints, Moody8217;s added. Overall, these circumstances exacerbate concerns about whether the growth of the economy and of exports can be sufficiently stimulated to reverse the recent weak performance of the external sector and government finances.
Moody8217;s acknowledged that India has moved a significant distance away from the highly regulated, isolationist country that experienced a serious balance of payments crisis seven years ago.
