2 weeks ago
Fitch upgrades Sri Lanka rating as finances stabilize, risks remain
Fitch Ratings gives countries grades that show how likely they are to repay borrowed money.
It raised Sri Lanka’s grade because the country’s finances have improved since its severe 2022 crisis.
Sri Lanka has increased taxes, controlled spending, and restructured its debt.
It is also following a reform programme supported by the International Monetary Fund.
Foreign-exchange reserves, which help pay for imports and debt, are starting to grow.
However, Sri Lanka still owes a lot of money compared with other countries in the same rating group.
Higher energy prices and future debt payments could create new problems.
Fitch says Sri Lanka will need continued reforms, stronger reserves, and lower debt to receive another upgrade.
Fitch Ratings upgraded Sri Lanka’s long-term foreign-currency rating to ‘B-’ from ‘CCC+’.
The agency cited economic stabilization, structural reforms, improved fiscal and external balances, and rebuilding foreign-exchange reserves.
Sri Lanka’s government debt is forecast to fall from 96.7% of GDP in 2025 to 92.9% in 2026.
Fitch expects 4.1% economic growth and average inflation of 6.3% in 2026.
The country remains vulnerable to energy-price shocks and larger external debt repayments, especially after 2028.
- Who
- Fitch Ratings and the Sri Lankan government, with support from the International Monetary Fund.
- What
- Fitch upgraded Sri Lanka’s long-term foreign-currency issuer default rating from ‘CCC+’ to ‘B-’.
- Where
- Sri Lanka.
- When
- The upgrade was reported after Sri Lanka’s 2022 economic crisis; the IMF programme is scheduled to end in March 2027.
- Why
- Fitch cited economic stabilization, structural reforms, improved fiscal and external balances, and rebuilding foreign-exchange reserves.
Signs of recovery
Continuing financial vulnerability
Economic stabilization
Signs of recovery
Fitch said Sri Lanka’s fiscal and external balances have improved, reserves are rebuilding, and reforms have reduced the risk of external financing pressures.
Continuing financial vulnerability
Sri Lanka remains exposed to external shocks, including higher energy prices, and its reserves are still modest.
Debt outlook
Signs of recovery
Government debt is forecast to decline to 92.9% of GDP in 2026, while fiscal discipline and stronger revenues are expected to support further improvement.
Continuing financial vulnerability
The projected debt level remains well above the 54.7% median for countries with a ‘B’ rating, and larger repayments are expected over the next five years.
Prospects for another upgrade
Signs of recovery
A possible return to international bond markets in 2027 reflects improving access to external financing.
Continuing financial vulnerability
Fitch said another upgrade would require substantially lower government debt and interest costs, stronger reserves, and improved remittances and export earnings.
Key facts
- New rating
- ‘B-’, upgraded from ‘CCC+’
- IMF programme
- A 48-month Extended Fund Facility worth about $3 billion, approved in 2023
- 2026 debt forecast
- Government debt expected at 92.9% of GDP, down from 96.7% in 2025
- 2026 growth forecast
- 4.1% GDP growth
- 2026 inflation forecast
- Average inflation of 6.3%, compared with negative 0.5% in 2025
- 2026 reserves forecast
- $7.7 billion, covering about 2.9 months of external payments
- Future financing
- The government is considering returning to international bond markets in 2027
Sources
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