(Reuters) – Credit ratings agency Fitch on Friday upgraded Sri Lanka’s long-term foreign-currency default rating to ‘CCC+’ from ‘restricted default’ (RD) following approval by creditors of the country’s $12.55 billion debt overhaul earlier this week.
The island nation’s bondholders overwhelmingly signed off on the government’s proposal to restructure international bonds, a much-needed step in its path to steadily recover from its worst financial crisis in decades.
“Sri Lanka has normalised relations with a majority of creditors,” Fitch said, as it also upgraded the country’s local-currency IDR to ‘CCC+’ from ‘CCC-‘.
According to Sri Lanka’s government, the new restructuring package is expected save the country $9.5 billion in debt service payments over the course of its four-year IMF programme.
The country secured a $2.9 billion four-year bailout from the International Monetary Fund (IMF) in March last year.
Sri Lanka defaulted on its foreign debt for the first time in May 2022 due to its high debt burden and dwindling foreign exchange reserves, sparking widespread shortage of food, fuel and medicines.
Under the debt overhaul plan, Sri Lanka’s defaulted bonds will be swapped for a series of new fixed income instruments, rewarding the country a 75 basis-point reduction in the interest rate provided it meets certain governance targets.
Once it finalises the bond exchange, the South Asian nation is in line to be the fourth country to conclude a bond restructuring this year following Ghana, Ukraine and Zambia.