Moody's Upgrades Sri Lanka's Credit Rating

(Reuters) – Credit ratings agency Moody's (NYSE:MCO) on Monday raised Sri Lanka's long-term foreign currency issuer rating to 'Caa1' from 'Ca' with a stable outlook, following the approval of a $12.55 billion debt overhaul by the country's creditors last week.

Improved Credit Profile

Moody's indicated that Sri Lanka's credit profile now reflects a reduction in external vulnerability and government liquidity risk, coupled with improved 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," Moody's stated in its report.

Background

The island nation defaulted on its foreign debt for the first time in May 2022, primarily due to its high debt burden and dwindling foreign exchange reserves. However, bondholders recently approved the government's proposal to restructure international bonds, aiding the country as it recovers from its worst financial crisis in decades.

The rating update concluded a review that Moody's had initiated last month, suggesting an upgrade might be forthcoming. Additionally, ratings agency Fitch raised Sri Lanka's long-term foreign-currency default rating to 'CCC+' from 'restricted default' on Friday.