Laos faces risk of default

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From Reuters

LONDON, Aug 14 (Reuters) - Laos in South East Asia faces a material risk of default, ratings agency Moody's warned on Friday as it cut the country's credit rating heavily.

The Laos government has $1.2 billion of debt payments due before the end of the year and $1 billion on average each year until 2025, with Moody's saying that the country - wedged between Thailand, Vietnam, Cambodia, Myanmar and China - appears to have no "credible" strategy to meet its debt obligations.

"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," Moody's said after cutting the country's rating two notches to Caa2 from B3.

The Laos economy is expected to show virtually no growth this year, having been expanding at an average of 6.7% over the past five years, Moody's added.

That is likely to widen the government's budget deficit to 6.7% of gross domestic product (GDP), from 3.5% of GDP last year, while pushing up its debt ratio by 6 percentage points to 64% of GDP by 2022. Reserves are now less than $1 billion.

Loans from commercial banks and Thai-baht bonds mature this year in September and October respectively and it also faces payments on a $150 million Eurobond due next June.

"The absence of a transparent financing strategy and opacity around how maturing debt obligations have and will continue to be met, raise uncertainty about the capacity for the government to secure financing in time and at affordable costs," Moody's said. (Reporting by Marc Jones Editing by David Goodman)