News Today: Moody’s signals credit rating upgrade for Sri Lanka

Moody’s has announced the potential for upgrading Sri Lanka’s ‘Ca’ long-term foreign currency rating following the government’s bond-exchange offer. This crucial step is part of Sri Lanka’s $12.55 billion debt restructuring efforts aimed at stabilizing the economy and restoring financial confidence.

The bond swap, launched Tuesday, introduces U.S. dollar-denominated debt offerings provisionally rated at ‘Caa1’, three levels above the current rating. Although still categorized as junk, the upgrade highlights optimism about the nation’s recovery. The offerings include macro-linked bonds (MLBs), governance-linked bonds (GLBs), and step-up and past-due interest bonds.

The GLB, a first-of-its-kind instrument, raised concerns about its rating viability for index inclusion. However, Moody’s positive stance on MLBs is expected to improve trading liquidity. Samy Muaddi, head of emerging markets fixed income at T. Rowe Price, stated that the MLB’s contingency features align with global financial precedents. Moody’s also confirmed that the new bonds would rank equally with other government obligations.

Sri Lanka defaulted on its foreign debt in May 2022 due to a severe economic crisis caused by heavy debt and dwindling foreign reserves. Investor confidence is gradually returning, as seen in the 0.75-cent rise in Sri Lankan USD bonds on Wednesday, with the June 2025 issue trading at 65.875 cents.

This potential credit rating improvement signifies progress in Sri Lanka’s financial restructuring journey and economic stabilization efforts.