Moody's Investors Service, ("Moody's") has downgraded the Government of eSwatini's long-term issuer rating to B3 from B2, and changed the outlook to stable from negative.

The downgrade to B3 reflects Moody's expectation that the deterioration in the government's debt burden and debt affordability will continue, weakening the sovereign's fiscal strength. The government faces shocks such as the coronavirus-related revenue shock, from a weak position having failed to narrow its deficit to a large enough extent and for long enough to stabilize, let alone reverse, a prolonged increase in its debt burden. Government liquidity risk, which remains elevated and evident in the large stock of government arrears, will continue to constrain growth prospects. External vulnerability is ever present due thin foreign exchange reserves coverage of imports.

The stable outlook at B3 is underpinned by the country's relatively high income levels, which are materially above B3-rated peers, and a relatively well integrated and diversified economy despite its small size. eSwatini's membership in the Common Monetary Area, and peg with the South African rand provide a policy anchor and supports low and stable inflation, an additional credit strength.

Concurrently, Moody's has maintained the local-currency bond and deposit ceilings at Ba3 and the foreign-currency bond ceiling at B1, while lowering the foreign-currency deposit ceiling to Caa1 from B3.

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