Moody's upgrades Sri Lanka's rating to ‘Caa1’ after creditors' approval of $12.55 billion debt restructuring

Global credit ratings agency Moody's on Monday, December 23, raised the long-term foreign currency issuer rating of the South-Asian nation, Sri Lanka, reported the news agency Reuters.

The long-term foreign currency issuer rating has now been raised to “Caa1” from its previous level of “Ca” with a stable outlook after the nation's creditors approved a $12.55 billion debt restructuring last week, reported the news agency. 

The country's credit profile shows a reduction in external vulnerability and government liquidity risk and a prospect for fiscal and debt sustainability, according to the report, cited in the news report.

“Sri Lanka's credit fundamentals have improved over the past two years... external vulnerability and government liquidity risk have both declined from elevated levels,” said Moody's quoted the news agency.

What is Sri Lanka's debt situation now?

In May 2022, Sri Lanka defaulted on its foreign debt for the first time ever due to the country's high debt burden and falling foreign exchange reserves.

Last week, Fitch Ratings also upgraded the island nation's long-term foreign-currency default rating to “CCC” compared to its earlier level of “restricted default”.

The Finance Ministry of Sri Lanka, in a statement, said that the debt default crisis has officially ended for the nation.

“December 20 marked a major milestone in our economic recovery process as Sri Lanka officially exited sovereign default,” said Mahinda Siriwardana, a bureaucrat in the Finance Ministry, in a statement cited by the news agency PTI. 

The Sri Lankan bondholders last week signed off on the government's proposal to restructure its international bonds as the country recovers from its worst financial crisis in decades, as per the news report.

Monday's rating upgrade to “Caa1” marks the conclusion of Moody's review, which started last week and indicated a possible upgrade in Sri Lanka bonds, as per the agency report.