Sri Lanka has officially emerged from default, with all three major international ratings agencies upgrading its sovereign ratings to the speculative grade, marking a critical step in the country’s economic recovery.
On Friday, S&P Global Ratings raised Sri Lanka’s long- and short-term foreign currency ratings to ‘CCC+/C’ from ‘SD/SD’. This follows Fitch Ratings’ upgrade to ‘CCC+’ from ‘RD’ on 20 December 2024, and Moody’s Investors Service raising its rating to Caa1 from Ca on 23 December 2024.
The upgrades reflect improved economic stability after two years of crisis, with GDP expanding 4.9% in Q2 2025 and foreign reserves recovering to $6.1 billion by August. Government revenue has also strengthened to 15% of GDP, compared with just 8.3% in 2021–22.
However, all three agencies warned of severe debt vulnerabilities. Net Government debt is projected at 101% of GDP in 2025, easing to 93% by 2028, while interest costs are expected to absorb 51% of revenue this year—far higher than the peer median of 16%.
Analysts said Sri Lanka’s long-term investor confidence will depend on the Government’s ability to sustain IMF-backed fiscal and structural reforms, while political and governance risks continue to weigh on the outlook.
