Ratings agency Moody’s has flagged concern over Sri Lanka’s policy uncertainty and future debt repayments after the shock sacking of the country’s prime minister.

President Maithripala Sirisena on Friday replaced prime minister Ranil Wickremesinghe with Mahinda Rajapaksa, a controversial former president, in a sudden decision that plunged the country into political turmoil. Mr Wickremesinghe disputed the president’s power to make the change and claimed he remained the legitimate prime minister. Mr Sirisena suspended parliament until November 16, leaving the two men both claiming to be prime minister.

The political crisis was credit negative for Sri Lanka and could undermine the country’s ability to refinance external debt early next year at affordable costs, said Moody’s analyst Matthew Circosta. “And at a time when global financial markets are turbulent, uncertainty about the direction of future policy could have a large and lasting negative impact on international investor confidence,” Mr Circosta said.

The political upheaval also follows investor fears over the Sri Lankan currency, with the country rated by Nomura last month as most at risk of an exchange rate crisis.

- The Financial Times