Fitch Lifts Sri Lanka Rating to B- With Stable Outlook
Sri Lanka's credit rating rose to B- as fiscal surpluses persisted, though energy costs threaten the current account balance in 2026.
Key points
- Fitch Ratings upgraded Sri Lanka's long-term issuer default rating to B- from CCC+ with a stable outlook.
- Sri Lanka is projected to maintain a primary surplus of 2.6% of GDP in 2026, down from 5.4% in 2025.
- The current account is expected to shift to a 1.2% deficit in 2026 due to rising energy import costs.
Fitch Ratings raised Sri Lanka’s long-term issuer default rating to B- from CCC+. The agency assigned a stable outlook to the sovereign debt.
The upgrade reflects successful macro-stabilization policies that reduced external financing risks. Structural reforms have improved fiscal and external balances significantly.
Fiscal surpluses drive debt reduction
Fitch forecasts a primary surplus of 2.6% of GDP for 2026. This follows a record 5.4% surplus achieved in the previous year.
Revenue growth supports this surplus despite higher reconstruction expenditures after Cyclone Ditwah. The Public Financial Management Act caps non-interest spending at 13% of GDP through 2031.
Government debt is expected to fall to 92.9% of GDP in 2026. This represents a decline from 96.7% in 2025 and continues a downward trend.
Energy costs pressure current account
High energy prices will flip the current account to a 1.2% deficit in 2026. This breaks a three-year trend of average surpluses of 1.5%.
The US-Iran conflict has increased the energy import bill and reduced tourism inflows. Remittances continue to rise steadily and offset some of these headwinds.
Reserves remain thin against debt
Foreign exchange reserves are forecast to reach USD7.7 billion by the end of 2026. This covers only 2.9 months of current external payments.
External debt repayments are set to rise over the next five years. The interest-to-revenue ratio remains 3x above the B-category median, limiting fiscal space.
