S&P Global Ratings has maintained Sri Lanka's sovereign credit rating at 'CCC+/C' with a stable outlook, citing strong revenue growth and economic resilience despite mounting external pressures from higher energy costs and Middle East geopolitical tensions.

S&P Global Ratings affirmed Sri Lanka's long- and short-term foreign and local currency sovereign credit ratings at 'CCC+/C' on July 27, 2026, with a stable outlook. The ratings agency also upgraded the country's transfer and convertibility assessment to 'B-' from 'CCC+', signaling improved confidence in Sri Lanka's ability to facilitate currency conversions and cross-border payments.

The stable outlook reflects S&P's expectation that Sri Lanka's economic growth and fiscal consolidation efforts will persist over the next six to 12 months. Real GDP expanded 5.1% in the first quarter of 2026, exceeding earlier forecasts. Strong revenue growth, which surged 34% in 2025 and continued at 30% growth in the first five months of 2026, has supported debt repair efforts and reduced the government's debt servicing costs. However, S&P cautioned that significant risks remain from external demand pressures, inflation volatility, and challenging financing conditions, preventing material improvements to the country's credit profile during this period.

External vulnerabilities are intensifying, according to the ratings agency. Higher import costs stemming from energy disruptions, particularly following the Strait of Hormuz closure, have raised fuel imports over 100% year-on-year in rupee terms. The rupee depreciated approximately 8% against the US dollar during the first half of 2026, eroding foreign exchange reserves, which fell to USD 6.45 billion in June from USD 6.88 billion in May. Tourism earnings declined nearly 10% in June, while remittance growth slowed to 9% in June from over 30% in May, creating uncertainty about critical foreign exchange sources. S&P projects the current account to shift to a 1.7% deficit in 2026 and economic growth to moderate to 3.8% this year, rebounding to 4.2% in 2027 as energy supply chains normalize.

Sri Lanka's vulnerabilities include high government debt at approximately 92% of GDP in 2026 and an elevated interest burden at 45% of revenue, though S&P expects this to improve to 39% by 2029. The ratings agency noted that the government does not face an immediate credit or payment crisis but warned that downgrades could occur if funding and liquidity pressures resurface or if fiscal and external performance deteriorate significantly. Conversely, ratings could improve if economic growth sustains and leads to further improvements in fiscal and external metrics.