Fitch Ratings has upgraded Sri Lanka's Long-Term Issuer Default Ratings to B− from CCC+ and assigned the country a Stable Outlook.
Fitch said the upgrade reflects implementation of macroeconomic stabilisation policies supported by structural reforms that have reduced external financing risks and provided greater resilience against shocks.
The agency highlighted sharp improvements in Sri Lanka's fiscal and external balances together with a modest rebuilding of foreign-exchange reserves.
Fiscal position
Fitch expects fiscal discipline and revenue mobilisation to support continued primary budget surpluses and place government debt as a share of GDP on a declining path.
The agency forecasts a primary surplus of 2.6% of GDP in 2026, following the unusually large surplus recorded in 2025.
It forecasts government debt at about 92.9% of GDP in 2026.
Reserves and external risks
Fitch expects foreign-exchange reserves to reach approximately US$7.7 billion by the end of 2026.
However, it also warned that Sri Lanka's reserve buffers remain relatively modest when considered against increasing external debt-service obligations over the coming years.
Fitch expects the current account to return to a deficit in 2026 amid external pressures including higher energy costs.
Rating still carries substantial credit risk
The upgrade does not mean Sri Lanka has returned to investment-grade status.
A B− sovereign rating remains within the speculative/non-investment-grade range.
Fitch said Sri Lanka's credit profile continues to be constrained by government debt and debt-service ratios that remain high compared with similarly rated sovereigns.
The rating therefore reflects an improvement in Fitch's assessment of sovereign credit risk, rather than the elimination of that risk.
Market reaction
Sri Lankan financial markets strengthened following the rating announcement.
The Colombo Stock Exchange's All Share Price Index recovered from earlier losses and closed 0.36% higher at 21,054.01.
The Sri Lankan rupee also strengthened in the spot market, closing around Rs.329.30/60 per US dollar, compared with approximately Rs.330.75/90 previously reported.
These are immediate market movements around the rating announcement and should not be interpreted as evidence of a lasting market trend or as proof that the Fitch decision alone caused longer-term economic changes.
What could affect the rating
Fitch said further improvement could be supported by a substantial and sustained reduction in government debt ratios and stronger foreign-exchange reserve buffers.
Conversely, weaker fiscal discipline, reduced revenue mobilisation or renewed external liquidity pressures could place downward pressure on the rating.
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