All three global ratings agencies confirm Sri Lanka’s exit from default
Daily FT: All three global ratings agencies have lifted Sri Lanka’s sovereign ratings out of default, confirming the country’s recovery phase and placing the ratings in the speculative grade.
S&P Global Ratings on Friday raised Sri Lanka’s long- and short-term foreign currency ratings to ‘CCC+/C’ from ‘SD/SD’. Fitch Ratings had upgraded the sovereign to ‘CCC+’ from ‘RD’ on 20 December 2024, while Moody’s raised its rating to Caa1 from Ca on 23 December 2024.
Despite the upgrades, the agencies flagged Sri Lanka’s heavy debt and weak public finances. Net Government debt is projected at 101% of GDP in 2025, easing only to 93% by 2028. Interest costs are expected to consume about 51% of revenue this year, far above the peer median of 16%. Revenue has improved to about 15% of GDP, from 8.3% in 2021-22, but remains narrow. Reserves recovered to $ 6.1 billion by August 2025, while GDP grew 4.9% in the second quarter after two years of contraction.
But the agencies said investor confidence will hinge on whether the Government sustains International Monetary Fund (IMF)-backed fiscal and structural reforms. Political and governance risks remain a key constraint on the outlook.
OSL take:
The strength, resilience and growth of Sri Lanka’s economy to external and internal economic shocks through the years have attracted the attention of foreign businesses/investors. The country has once again shown strength and resilience by the quick turnaround of Sri Lanka’s economy after facing an unprecedented economic crisis in 2022. However, Sri Lanka is once again poised to attract foreign businesses/investors as an emerging business destination in the South Asian region with the country once again on the path to becoming a regional hub. Sri Lanka’s strategic positioning in the Indian Ocean, the strong trade ties enjoyed with many foreign countries and the increasing business conducive environment have given a further boost to Sri Lanka as a business destination. Given all the positive factors, the improving ratings of international rating agencies and the expanding economy, foreign businesses/investors could confidently explore the increasing business/investment opportunities in all key economic sectors in the country. Sri Lanka also continues to figure prominently in external economic strategies of some foreign countries like China’s Belt and Road Initiative (BRI). Foreign businesses could look at setting up bases in Sri Lanka to engage with other countries in the region using the strong trade ties enjoyed by Sri Lanka with many countries in the region and beyond. Also, foreign businesses could further expand operations through partnerships or joint ventures with local businesses.
| Article Code : | VBS/AT/20250925/Z_4 |