S&P Global Ratings has affirmed Sri Lanka’s long-term and short-term foreign and local currency sovereign credit ratings at ‘CCC+/C’, with a stable outlook, citing the country’s resilient economic performance despite mounting external challenges.
The ratings agency said Sri Lanka’s economy has remained resilient in the face of multiple external shocks, while strong revenue growth has continued to support fiscal consolidation and reduce the Government’s debt servicing burden.
However, S&P warned that the country’s external position could weaken this year due to higher import costs and the impact of the Middle East conflict on tourism earnings and worker remittances, slowing the rebuilding of foreign exchange reserves.
The agency also upgraded Sri Lanka’s Transfer and Convertibility Assessment to ‘B-‘ from ‘CCC+’, reflecting lower risks associated with transferring funds abroad and converting local currency into foreign exchange.
S&P expects Sri Lanka’s economic growth and fiscal reforms to continue over the next six to 12 months, although it does not anticipate a significant improvement in the country’s credit profile during that period due to continued risks from external demand, inflation and financing conditions.
The ratings agency noted that Sri Lanka’s public debt remains high, with government interest payments estimated at around 45% of revenue, while forecasting economic growth to moderate to 3.8% in 2026 before recovering to 4.2% in 2027.
S&P said stronger-than-expected economic growth and further improvements in fiscal and external indicators could lead to a ratings upgrade. Conversely, weaker fiscal or external performance, or renewed funding and liquidity pressures, could result in a downgrade. (Newswire)