Moody's raises Sri Lanka's rating after debt overhaul approval

Dec 23 (Reuters) - Credit ratings agency Moody's on Monday raised Sri Lanka's long-term foreign currency issuer rating to 'Caa1' from 'Ca' with a stable outlook, after the country's creditors approved a $12.55 billion debt overhaul last week.

Sri Lanka's credit profile reflects the reduction in external vulnerability and government liquidity risk, and prospects for fiscal and debt sustainability, Moody's said in a report.

"Sri Lanka's credit fundamentals have improved over the past two years... external vulnerability and government liquidity risk have both declined from elevated levels," Moody's said.

The island nation had defaulted on its foreign debt for the first time in May 2022 due to its high debt burden and dwindling foreign exchange reserves.

Its bondholders last week signed off on the government's proposal to restructure its international bonds as the island nation recovers from its worst financial crisis in decades.

The rating action marked the conclusion of a review Moody's initiated last month, in which it had indicated a possible upgrade.

Ratings agency Fitch on Friday raised Sri Lanka's long-term foreign-currency default rating to 'CCC+' from 'restricted default'. (Reporting by Shashwat Awasthi; Editing by Mrigank Dhaniwala)