Moody’s upgrades Sri Lanka’s credit rating after $12.55 billion debt restructuring

Credit ratings agency Moody’s has upgraded Sri Lanka’s long-term foreign currency issuer rating to ‘Caa1’ from ‘Ca’, with a stable outlook.

This move comes after the country successfully completed a $12.55 billion debt restructuring plan last week, as reported by Reuters.

In its report, Moody’s highlighted that Sri Lanka’s credit profile has improved due to reduced external vulnerability, lower government liquidity risk and better prospects for fiscal and debt sustainability.

“Sri Lanka’s credit fundamentals have improved over the past two years… external vulnerability and government liquidity risk have both declined from elevated levels,” the agency stated.

Sri Lanka faced its first-ever foreign debt default in May 2022 due to a heavy debt burden and a lack of foreign exchange reserves. However, the recent approval by bondholders to restructure international bonds marks a significant step in the country’s recovery from its worst financial crisis in decades.

The upgrade also concludes a review Moody’s initiated last month, during which it hinted at the possibility of an improved rating.

Last Friday, another ratings agency, Fitch, raised Sri Lanka’s long-term foreign-currency default rating to ‘CCC+’ from ‘restricted default,’ signaling growing confidence in the country’s economic recovery.