Fitch Ratings has upgraded Sri Lanka’s Long-Term Issuer Default Ratings from CCC+ to B-, with a Stable Outlook.
The upgrade reflects improvements in the country’s fiscal and external balances, according to Fitch.
The ratings agency said macroeconomic stabilisation policies, supported by structural reforms, have eased external financing risks and provided some resilience against economic shocks.
Fitch also pointed to improvements in fiscal and external balances and a modest rebuilding of foreign-exchange reserves.
The agency expects fiscal discipline and higher government revenue to support continued primary budget surpluses. It also expects these surpluses to help keep government debt as a share of GDP on a downward path.
Why Does the B- Rating Matter?
The move from CCC+ to B- represents a change in Sri Lanka’s position on Fitch’s sovereign credit rating scale.
A B- rating remains in the highly speculative category. Therefore, the upgrade does not mean that Sri Lanka has reached investment-grade status.
However, the move takes the country out of the CCC+ rating level cited in Fitch’s previous review. Fitch’s own rating model assigns Sri Lanka a B- equivalent score, and its sovereign rating committee made no adjustment to that result.
For investors and lenders, sovereign credit ratings provide an assessment of a government’s credit risk. A change in the rating can therefore influence how international markets assess the country’s ability to meet its financial obligations and manage future borrowing.
The Stable Outlook also indicates that Fitch has not currently placed the rating on an immediate upward or downward trajectory.
Debt Risks Still Remain
Despite the upgrade, Fitch said Sri Lanka’s credit profile remains constrained by high government debt-to-GDP and debt-service ratios compared with rating peers.
The agency forecasts government debt at 92.9% of GDP in 2026, down from 96.7% in 2025. However, this remains well above the 54.7% median for B-rated countries.
Fitch also expects the government’s interest-to-revenue ratio to fall to 41.0% in 2026, from 45.6% in 2025.
Despite the improvement, this remains around three times the 12.7% median for B-rated countries.
The agency said fiscal space remains limited and that continued adherence to fiscal frameworks will be important for debt sustainability.
External Financing Remains a Key Risk
Fitch expects foreign-exchange reserves to reach USD 7.7 billion, or about 2.9 months of current external payments, by the end of 2026.
However, it said external reserve buffers remain modest, particularly as external debt-service payments are expected to increase over the next five years.
The agency also expects Sri Lanka’s current account to move into a deficit of 1.2% of GDP in 2026, mainly because higher energy prices are increasing the import bill.
Remittances are expected to continue supporting the external position, while Fitch expects the current account to return close to balance in 2027 as the energy shock eases.
Fitch also noted that the Government is considering a return to global bond markets in 2027. The current IMF Extended Fund Facility programme is scheduled to end in March 2027.
What Could Lead to Another Upgrade?
Fitch said further positive rating action could follow a substantial decline in government debt and interest-to-revenue ratios.
It also identified stronger fiscal consolidation, improved debt management, higher revenue mobilisation and faster economic growth as factors that could support an upgrade.
On the external side, a large and sustained increase in foreign-exchange reserves could also support positive rating action. Fitch cited stronger remittance inflows and export performance as possible sources of such improvement.
At the same time, Fitch identified weaker fiscal discipline, reduced revenue mobilisation, renewed pressure on foreign-exchange reserves and persistent current account deficits as factors that could lead to a downgrade.
Last modified: September 22, 2026
