Ratings agency Fitch on Friday upgraded Sri Lanka's long-term foreign currency default rating from “restricted default” (RD) to “CCC+”, following creditors' approval of the debt restructuring of the country, amounting to 12.55 billion dollars, at the start of the week.
The island nation's bondholders have overwhelmingly approved the government's proposal to restructure international bonds, a much-needed step to gradually emerge from the country's worst financial crisis in decades.
Sri Lanka has normalized its relations with a majority of creditors,” said Fitch, which also raised the country's local currency IDR from 'CCC-' to 'CCC+'.
According to the Sri Lankan government, the new restructuring plan is expected to save the country $9.5 billion in debt service payments over the four years of its program with the IMF.
The country landed a four-year, $2.9 billion bailout package from the International Monetary Fund (IMF) in March last year.
Sri Lanka defaulted on its external debt for the first time in May 2022 due to its high debt burden and dwindling foreign exchange reserves, leading to widespread shortages of food, fuel and medicine. .
Under the debt consolidation plan, Sri Lanka's outstanding bonds will be exchanged for a series of new fixed income instruments, allowing the country to benefit from a 75 basis point reduction in the debt rate. interest, provided that it achieves certain governance objectives.
Once the bond swap is finalized, the South Asian country is expected to be the fourth country to complete a bond restructuring this year, after Ghana, Ukraine and Zambia.
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