Moody’s Investors Service (“Moody’s”) has today downgraded the Government of Laos’s issuer rating to Caa2 from B3 and changed the outlook to negative. This concludes the review for downgrade initiated on 19 June 2020.
The decision to downgrade the rating to Caa2 reflects Moody’s assessment that Laos is facing severe liquidity stress, given sizeable debt servicing payments due this year and persisting until 2025, and constrained financing options. Heightened liquidity risk is exacerbated by weak external and fiscal buffers and poor governance, and points to a material probability of default in the near term.
The negative outlook reflects the risk of material losses to investors in the event of a default by Laos, beyond what would be consistent with a Caa2 rating. A more severe deterioration in credit fundamentals than Moody’s currently expects, potentially because of a more acute impact of the coronavirus shock, would raise the probability of default and may imply larger losses to private sector creditors.
Concurrently, Moody’s has lowered Laos’s long-term foreign-currency bond ceiling to Caa1 from B1, its long-term foreign-currency deposit ceiling to Caa3 from Caa1, and its long-term local-currency bond and deposit ceilings to B1 from Ba3.