Fitch Upgrades Sri Lanka to ‘B-’ With Stable Outlook

COLOMBO (News 1st); Fitch Ratings has upgraded Sri Lanka’s Long-Term Issuer Default Ratings (IDRs) to ‘B-’ from ‘CCC+’ and assigned the country a Stable Outlook.

According to Fitch, the upgrade is driven by the implementation of macro-stabilization policies supported by structural reforms that have reduced external financing risks and strengthened the country’s ability to withstand economic shocks.

The ratings agency noted that the improvement is reflected in substantial gains in Sri Lanka’s fiscal and external balances, as well as the gradual rebuilding of foreign exchange reserves.

Fitch stated that continued fiscal discipline and efforts to improve government revenue collection are expected to support sustained primary budget surpluses, helping to place the country’s debt burden on a downward trajectory while reducing the risk of a return to external imbalances.

Despite the upgrade, Fitch cautioned that Sri Lanka continues to face several challenges.

The agency pointed out that the country’s credit profile remains constrained by government debt-to-GDP levels and debt servicing obligations that remain significantly higher than those of many similarly rated countries, even after recent debt restructuring and macroeconomic adjustments.

Fitch also observed that Sri Lanka’s foreign exchange reserve buffers remain relatively modest, particularly in light of the increase in external debt servicing obligations expected over the next five years.