The credit rating agency, Moody’s, has downgraded Hong Kong’s outlook rating which was stable to negative. The move comes just days after credit rating agency, Fitch, had also downgraded the ratings of the city.
Hong Kong has been marred with protests since July when a controversial extradition bill was floated in the city’s legislative council. This fueled protests over the fear of China’s growing intervention in the city.
The bill would have also allowed China to seek custody of people who it thinks are criminals. People have come out demanding the bill to be withdrawn and the resignation of the city’s Chief Executive, Carrie Lam.
In a press release, the rating agency said, “The change in outlook to negative reflects the rising risk that the ongoing protests reveal an erosion in the strength of Hong Kong’s institutions, with lower government and policy effectiveness than Moody’s had previously assessed.”
Hong Kong has been gripped with the protests even after the Chief Executive had withdrawn the bill. The burst of violent incidents during the past few weeks can also be considered as a factor behind the negative outlook rating.
Still, despite the negative outlook, the city still has an AA2 credit rating.
The press release also states that despite the current challenges, its financial system is still has been functioning. The release said,” Ample foreign exchange reserves also contribute to macroeconomic stability for a small, open economy and large financial center.”
With the protests, ongoing did little effect on the financial services in the city. The banking sector also maintained liquidity and normal functionality throughout the protests. But the agency is also concerned about the economic stability of the city. The longer the standoff remains would mean that it would pose great risks in attracting new investments as the economic and financial hub of Asia.
Moody’s has not ruled out a change in the outlook rating. The release said, “the outlook could change back to stable if the ongoing dispute is resolved in a way that provides assurance that Hong Kong’s economic and institutional strength will be preserved.”
(Inputs from agencies)