ECONOMYNEXT – S&P International Scores raised Sri Lanka’s sovereign score to non funding price CCC+ from Selective Default (SD) on a secure outlook citing the island nation’s financial system has recovered steadily from its 2022 financial disaster, however its debt burden stays excessive even after the restructuring of most of its exterior debt.
It has been the primary score enchancment by the S&P because the unprecedented disaster three years in the past.
“Whereas Sri Lanka has been actively negotiating with collectors on remaining industrial debt nonetheless in default, together with SriLankan Airways’ government-guaranteed bonds, we imagine that, based mostly on the passage of time, additional decision is unlikely below present circumstances,” the S&P stated in an announcement.
“Sri Lanka’s financial system has recovered steadily from its 2022 financial disaster, with some macroeconomic indicators already surpassing pre-crisis ranges. Nevertheless, its debt burden stays excessive even after the restructuring of most of its exterior debt.”
“We due to this fact raised our international forex sovereign credit score scores on Sri Lanka to ‘CCC+/C’ from ‘SD/SD’ (selective default) to higher replicate our forward-looking opinion of Sri Lanka’s creditworthiness. On the identical time, we affirmed the ‘CCC+/C’ native forex scores.”
S&P slashed Sri Lanka’s score as an issuer of international forex debt to ‘selective default’ after the island nation missed sovereign bond curiosity funds in April 2022.
It stated the secure outlook displays a steadiness between its expectation of Sri Lanka’s continued financial restoration, supported by fiscal reform and exterior enhancements, and the nation’s excessive debt and heavy curiosity burden over the following one to 2 years.
“We may decrease the scores on Sri Lanka if we see indications of renewed funding and liquidity stresses,” the score company warned.
“Developments that might precede such indicators embrace a fast rise in inflation, an additional rise within the authorities’s curiosity burden, or considerably weaker fiscal efficiency, resulting in funding pressures.”
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Nevertheless, it additionally stated the scores could possibly be additional raised if financial development continues to be strong.
“We imagine that Sri Lanka’s fiscal and exterior enhancements are extra entrenched. This may enhance the federal government’s potential to handle its giant debt.”
“The improve displays Sri Lanka’s current efforts to finish the restructuring of its remaining industrial debt, together with government-guaranteed Sri Lankan Airways (SLA) bonds, following its December 2024 alternate of most of its Eurobonds.”
“Negotiations on restructuring the SLA debt started earlier this 12 months, with the airline and authorities making a proposal based mostly on comparability of therapy with different exterior collectors.”
“We see a risk that some lenders may grow to be holdout collectors, making an additional decision within the negotiations unlikely, based mostly on the passage of time.”
“We imagine this case can be unlikely to disrupt or unwind the debt restructuring course of, given the ideas of comparability of therapy and the most-favored creditor clauses in Sri Lanka’s restructured bonds.”
“The scores on Sri Lanka are supported by its sturdy financial restoration, fast fiscal consolidation and reform (supported by an ongoing IMF program), accumulation of international alternate reserves, an bettering exterior place, and sustained progress in lowering fiscal dangers from its state-owned enterprises (SOE).”
“These strengths are counterbalanced by the nation’s excessive debt–as most of its high-yielding home industrial debt was excluded from the debt restructuring train–and a really heavy curiosity burden of about 50% of basic authorities income. These structural vulnerabilities will take time to unwind, notably as exterior debt servicing will begin to enhance in 2029.”
“The ‘CCC+’ scores replicate our views that Sri Lanka’s creditworthiness is weak and dependent upon favorable monetary and financial circumstances, however the authorities doesn’t face a near-term fee disaster.” (Colombo/September 19/2025)
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