Moody’s has upgraded Sri Lanka’s sovereign rating from ‘Ca’ to ‘Caa1’ with a stable outlook, following the successful restructuring of international sovereign bonds.
“Willingness and capacity to implement reforms speak to Sri Lanka’s governance and also underpin the rating action,” Moody’s stated.
However, weak debt affordability and a high debt burden compared to peers continue to constrain fiscal flexibility and hinder the government’s ability to address social challenges.
Sri Lanka’s local and foreign currency ceilings were also raised to B1 and B3, respectively. The three-notch gap between the local currency ceiling and sovereign rating reflects contained government influence and increasing but still limited foreign exchange reserves.
The stable outlook signifies balanced risks. Moody’s noted that continued reforms could strengthen Sri Lanka’s credit profile, while narrow revenue streams and reliance on external financing pose downside risks, especially in an unfavorable global economic environment.
This upgrade underscores Sri Lanka’s progress in restructuring its debt and implementing reforms, while acknowledging ongoing fiscal and social challenges.
