By: Staff Writer
May 20, Colombo (LNW): Moody’s recent downgrade of the United States’ long-term credit rating has raised fresh concerns in Sri Lanka over the safety and valuation of its foreign reserves, much of which are invested in U.S. Treasuries. In response, the Lanka Rating Agency (LRA) has issued a statement confirming it is closely monitoring the potential implications of the downgrade on the country’s financial stability.
On May 16, 2025, Moody’s Investors Service cut the U.S. government’s long-term issuer and senior unsecured debt ratings from Aaa to Aa1, citing rising debt levels, growing interest burdens, and a weakening fiscal outlook.
The outlook has been revised from “negative” to “stable,” signaling that while immediate further deterioration is not expected, the downgrade reflects persistent structural challenges in the U.S. economy.
The move means the United States has now lost its triple-A rating from all three major global credit rating agencies—Moody’s, Fitch, and S&P.
This development is significant for Sri Lanka, which holds a notable portion of its foreign exchange reserves in U.S. government securities. Traditionally considered one of the safest assets, the downgrade introduces new risk perceptions that could impact the value of Sri Lanka’s reserves and its overall reserve management strategy.
In a statement, the Lanka Rating Agency said it is “actively assessing the impact of this development on local financial markets and reserve management strategies,” urging Sri Lankan policymakers and financial stakeholders to remain vigilant.
“Given Sri Lanka’s economic recovery is still at a delicate stage, any shift in global risk sentiment can have a ripple effect on our foreign reserves, exchange rate, and debt servicing capacity,” an LRA spokesperson noted.
Sri Lanka, which is navigating post-crisis economic reforms under an International Monetary Fund (IMF) program, relies heavily on the stability of its reserve assets to manage external obligations and currency pressures. A downgrade in the creditworthiness of U.S. Treasuries could prompt a reassessment of risk-adjusted returns and encourage discussions around diversifying reserves.
While the downgrade does not indicate a default risk by the U.S., it reflects broader concerns about fiscal management and political uncertainty in Washington—factors that can indirectly influence emerging markets like Sri Lanka.
LRA reaffirmed its commitment to providing independent, internationally aligned credit assessments to support informed decision-making. The agency will continue to track global developments and provide guidance on their implications for Sri Lanka’s financial system.
