Fitch affirms Sri Lanka at ‘CCC+’

Fitch Ratings has affirmed Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘CCC+’.

Fitch Ratings stated that Sri Lanka’s ‘CCC+’ sovereign rating remains constrained by elevated general government indebtedness and a high interest-revenue ratio despite completion of the sovereign’s debt restructuring in 2024.

Sustained adherence to a path of reforms is facilitating a solid economic recovery, low inflation, a substantial fiscal adjustment, and improvements in the external finance position, it added further.

Fitch in its review stated that “substantial progress has been made under the 48-month IMF programme and momentum includes passage of the 2025 budget in March in line with programme targets, and restoration of cost-recovery pricing for electricity. Additional measures include greater tax compliance and revenue administration, and reforms to the Ceylon Electricity Board and state-owned enterprises. The investment climate, particularly FDI, is likely to remain a priority - to bolster medium-term growth, albeit with incremental progress.”

A substantial decline in the general government debt/GDP ratio that is underpinned by strong implementation of a credible medium-term fiscal consolidation strategy; growth in fiscal revenue; and faster economic growth, could result in positive rating action or upgrade in future according to Fitch Ratings.