Sri Lanka Gets First Credit Rating Upgrade Since Crisis

 

For the first time since Sri Lanka’s 2022 economic collapse, global rating agency S&P Global Ratings has lifted the country’s credit score. The sovereign rating has been upgraded from “Selective Default (SD)” to CCC+, with a stable outlook.

The move signals cautious optimism. According to S&P, Sri Lanka’s economy has made a steady recovery, with some key indicators already stronger than before the crisis. Inflation has cooled, foreign exchange reserves are up, and fiscal reforms backed by the IMF are showing results.

However, the upgrade comes with warnings. Even after restructuring most of its foreign debt, Sri Lanka’s overall debt burden remains very high. About half of government revenue still goes to pay interest. Some debts — including bonds guaranteed for SriLankan Airlines — are still in default, and talks with creditors have dragged on without resolution.

S&P said the stable outlook reflects a balance: on the one hand, Sri Lanka’s recovery and reforms; on the other, the risks from heavy debt and future repayment pressures. The agency noted that if inflation surges again, interest costs rise further, or fiscal discipline slips, the rating could be downgraded.

On the flip side, if the country maintains robust growth and deepens its reforms, there could be more upgrades in the future.

This is Sri Lanka’s first ratings improvement since the unprecedented 2022 crisis, when the country defaulted on its foreign debt and S&P cut its rating to selective default. While the upgrade to CCC+ still leaves Sri Lanka in the “non-investment grade” category — often called “junk” status — it is an important signal to international lenders that the country is slowly regaining stability.