Fitch Upgrades Sri Lanka Credit Rating to B-

Fitch Ratings upgraded Sri Lanka's Long-Term Issuer Default Ratings to B- from CCC+ with a stable outlook. The agency attributed the move to the implementation of macro-stabilization policies and structural reforms that improved fiscal and external balances and modestly rebuilt foreign exchange reserves.

Despite the upgrade, the credit profile remains pressured by high debt service ratios and government debt-to-GDP. Fitch forecasts a primary surplus of 2.6% of GDP in 2026, though economic headwinds persist. These include a projected current account deficit of 1.2% of GDP in 2026, driven by the aftermath of Cyclone Ditwah and high energy prices resulting from the US-Iran conflict.

To address rising inflation, the Central Bank of Sri Lanka raised its policy rate to 8.75% in May. The country continues to receive external financing from the International Monetary Fund and other multilateral agencies under an Extended Fund Facility program scheduled to conclude in March 2027.