Fitch Upgrades Sri Lanka's Credit Rating Following $12.55 Billion Debt Overhaul

Fitch Ratings has upgraded Sri Lanka's long-term foreign-currency default rating to 'CCC+' from 'Restricted Default' (RD) after creditors approved the country's $12.55 billion debt restructuring plan earlier this week. This marks a significant milestone in Sri Lanka’s recovery from its worst financial crisis in decades.

The debt overhaul, endorsed by the majority of bondholders, aims to ease Sri Lanka’s debt burden, saving the country an estimated $9.5 billion in debt service payments over the four-year duration of its International Monetary Fund (IMF) programme. Sri Lanka had secured a $2.9 billion bailout from the IMF in March last year to stabilize its economy.

Fitch also upgraded Sri Lanka's local-currency Issuer Default Rating (IDR) to 'CCC+' from 'CCC-' as the country works toward normalizing relations with its creditors. Under the restructuring plan, the country’s defaulted bonds will be exchanged for new fixed-income instruments. Additionally, a 75 basis-point reduction in the interest rate will be granted if Sri Lanka meets certain governance targets.

The restructuring follows Sri Lanka’s historic foreign debt default in May 2022, which resulted in severe shortages of food, fuel, and medicine due to depleted foreign reserves. With this development, Sri Lanka is poised to become the fourth country this year, after Ghana, Ukraine, and Zambia, to conclude a bond restructuring process.