Fitch Ratings says that the increased US tariffs will weigh on the credit metrics of many sovereigns in the Asia-Pacific, with Sri Lanka likely to be among the affected states when country-specific tariffs are eventually implemented.
The agency believes Asian economic growth will slow as exports and export-oriented investment are hit by tariffs and high uncertainty.
Fitch also pointed out that regional governments’ policy responses to the trade war will be key to its impact on APAC sovereign ratings.
According to the rating agency Foreign-exchange reserves could shrink if authorities intervene to support their currencies in the face of market pressure to depreciate following the tariff increases.
This could be credit negative for sovereigns with relatively low external buffers, such as Bangladesh, Sri Lanka and Vietnam, particularly if their export earnings are hurt by the tariffs.
