S&P upgrades Sri Lanka sovereign rating to CCC+/C; outlook stable

S&P Global Ratings yesterday raised its long and short-term foreign currency sovereign credit ratings on Sri Lanka to 'CCC+/C' from 'SD/SD'.

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• 2025 growth seen at 4.2%; revenue on track for 15% of GDP and primary surplus

• Net Govt. debt 101% of GDP in 2025, easing to 93% by 2028; interest about 51% of Govt. revenue this year

• Macro-linked bonds likely to hit upside triggers, lifting coupons 1.75%-2% and principal 17%22% in 2029-32

• Holdout possible on SriLankan Airlines debt, but S&P sees low risk to overall debt restructuring

It also affirmed its 'CCC+/C' longand short-term local currency ratings.

The outlook on both the long-term foreign and local currency ratings is stable. The transfer and convertibility assessment remains 'CCC+'.

S&P said that while Sri Lanka has been actively negotiating with creditors on remaining commercial debt still in default, including SriLankan Airlines' Government-guaranteed bonds, it believed that, based on the passage of time, further resolution was unlikely under current circumstances.

It noted that Sri Lanka's economy had recovered steadily from its 2022 economic crisis, with some macroeconomic indicators already surpassing pre-crisis levels. However, its debt burden remains high even after the restructuring of most of its external debt.

"We therefore raised our foreign currency sovereign credit ratings on Sri Lanka to'CCC+/C'from 'SD/SD'(selective default) to better reflect our forward-looking opinion of Sri Lanka's creditworthiness. At the same time, we affirmed the 'CCC+/C'local currency ratings. The outlook on the ratings is stable, the ratings agency said.

"The stable outlook reflects a balance between our expectation of Sri Lanka's continued economic recovery, supported by fiscal reform and external improvements, and the country's high debt and heavy interest burden over the next one to two years, it said.