September 23, 2026
Fitch Ratings has upgraded Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-’ from ‘CCC+’, assigning a Stable Outlook. The upgrade reflects improvements in the country’s fiscal and external positions, supported by macroeconomic stabilisation policies and structural reforms.
According to Fitch, Sri Lanka’s progress in fiscal management and revenue mobilisation has helped reduce external financing risks and strengthen the economy’s resilience to shocks. The ratings agency expects continued fiscal discipline to support primary budget surpluses and place government debt on a downward trajectory.
Fitch forecasts Sri Lanka to record a primary surplus of 2.6% of GDP in 2026, following the record 5.4% surplus recorded in 2025. Government debt is projected to decline to 92.9% of GDP in 2026, compared with 96.7% in 2025.
The agency also expects the government’s interest-to-revenue ratio to improve to 41% in 2026, down from 45.6% in 2025 and a peak of 76.3% in 2023. However, these indicators remain high compared with other countries in the ‘B’ rating category.
Fitch noted a modest rebuilding of Sri Lanka’s foreign exchange reserves. The agency expects reserves to reach around US$7.7 billion by the end of 2026, although reserve buffers remain relatively modest in relation to the country’s future external debt-service obligations.
Rising remittances are expected to provide support to the external sector. However, higher global energy prices could place pressure on the current account, with Fitch forecasting a current-account deficit of 1.2% of GDP in 2026.
Fitch expects Sri Lanka’s economic growth to moderate to around 4.1% in 2026, compared with an average growth rate of about 5% over the previous two years. The ratings agency identified energy-price pressures and Sri Lanka’s dependence on imported energy and fertiliser as continuing external risks.
Inflation is forecast to average 6.3% in 2026, before easing towards the Central Bank of Sri Lanka’s 5% target in 2027.
