Fitch Ratings has upgraded Sri Lanka’s Long-Term Issuer Default Ratings to ‘B-’ from ‘CCC+’ with a stable outlook, lifting the sovereign out of the CCC range for the first time since the 2022 default. The action was announced from Hong Kong on Tuesday and reported by EconomyNext, NewsFirst and Hiru News.
The agency credited macro-stabilisation policies underpinned by structural reforms, which it said had eased external financing risks and delivered sharp improvements in fiscal and external balances alongside a modest rebuilding of foreign exchange reserves.
Sri Lanka now carries a split rating
The upgrade opens a gap between the three major agencies. S&P Global Ratings affirmed Sri Lanka at ‘CCC+/C’ on 27 July, and Moody’s affirmed Caa1 in August. Fitch now sits a notch above both — though S&P had already moved one component, its transfer and convertibility assessment, to ‘B-’ in July.
The agencies also differ on growth. Fitch expects GDP growth to moderate to 4.1% in 2026 from a 5.0% average over the past two years, and just over 4% in the medium term; S&P’s July forecast was 3.8%.
The car-import windfall Fitch is counting on fading
Fitch forecasts a primary surplus of 2.6% of GDP in 2026, down from a record 5.4% in 2025, with the overall deficit widening to 4.1% from 2.3%. Rising revenue, it said, reflects tax reforms and a temporary surge in import duties from pent-up demand for imported cars — and it expects revenue to moderate “with easing auto imports.”
That moderation is already visible. Vehicle registrations fell to a nine-month low in August, released the same day as the upgrade. Neither the rating release nor the registration data references the other.
What still constrains the rating
Fitch kept its warnings prominent: government debt-to-GDP and debt service ratios remain high against rating peers, and reserve buffers are modest — forecast at US$7.7 billion, or 2.9 months of current external payments, by end-2026. External repayments rise over the next five years, particularly after 2028, when Fitch expects the highest macro-linked bond threshold to be reached.
The current IMF Extended Fund Facility ends in March 2027. Fitch said a follow-on facility is possible, and that the government is considering a return to global bond markets that year.
