S&P Global Ratings has upgraded Sri Lanka’s foreign currency sovereign credit rating to ‘CCC+/C’ from ‘SD/SD’ (Selective Default), reflecting improved macroeconomic stability, progress under the IMF programme, and the Government’s continued commitment to fiscal and debt management reforms.

The long-term foreign currency rating was raised from ‘SD’ to ‘CCC+’ with a stable outlook, signalling cautious optimism over Sri Lanka’s medium-term ability to meet its debt obligations. This marks the first ratings upgrade since Sri Lanka’s default on external debt in 2022.

According to S&P, Sri Lanka has made meaningful strides in stabilising the economy, completing four IMF reviews and unlocking US$ 1.7 billion in funding. While acknowledging delays in some targets, the agency noted the continuation of politically challenging reforms, including in taxation, energy pricing, and governance.

“Sri Lanka’s economy has 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,” S&P said.

The upgrade also reflects Sri Lanka’s progress in completing the restructuring of its remaining commercial debt, including SriLankan Airlines bonds, following the December 2024 exchange of most Eurobonds. While recognising the risk of holdout creditors, S&P said it did not expect this to derail the restructuring process.

S&P highlighted key factors supporting the rating:

• Strong economic recovery and rapid fiscal consolidation.
• Reform momentum under the IMF programme.
• Accumulation of foreign reserves and improved external position.
• Efforts to reduce risks from state-owned enterprises (SOEs).

These positives are tempered by Sri Lanka’s heavy debt burden, particularly as domestic commercial debt was excluded from the restructuring. The country also faces an interest burden of about 50% of government revenue, with external debt servicing pressures expected to rise from 2029 onward.

The stable outlook reflects a balance between expectations of continued recovery and reform progress against the risks posed by high debt levels and fiscal vulnerabilities.

Sri Lanka’s Ambassador to the United States, Mahinda Samarasinghe, met with Democratic Congressman Gregory W. Meeks at the Rayburn House Office Building recently and briefed him on recent developments in Sri Lanka.

Congressman Meeks currently serves as the Ranking Member of the House Foreign Affairs Committee and previously chaired the Committee during the 117th Congress.

The Ambassador was accompanied by Deputy Chief of Mission Madhuka Wickramarachchi and Defence Attaché Commodore Dumindu Abeywickrama.

The long-awaited reconstruction of the Columbuthurai fishing jetty in Jaffna commenced on Thursday (18), offering renewed prospects for fisher families while also contributing to the beautification of the area.

The project, valued at Rs. 140 million, is funded by the Ministry of Fisheries, Aquatic and Ocean Resources. The inauguration ceremony was held at the jetty with the participation of Fisheries Minister Ramalingam Chandrasekar, Transport, Highways, Ports and Civil Aviation Minister Bimal Rathnayake, Northern Province Governor N. Vethanayahan, Members of Parliament, officials, and local residents.

Addressing the gathering, Minister Chandrasekar highlighted that the project was initiated following repeated requests from stakeholders. “I presented this matter at the Cabinet, and the Government immediately approved the project with an allocation of Rs. 140 million,” he said. He further noted that the Government, having steered the country through economic hardship, has now entered a new phase of development, with major undertakings such as framing a new Constitution ahead.

Governor Vethanayahan, speaking at the event, stressed that development must go beyond physical infrastructure to uplift people’s lives. “Even during my time as Jaffna GA, I tried to push this project forward, but it could not be realised then. Today, under the present Government, it has become a reality. Within just one year of assuming office, President Anura Kumara Dissanayake has initiated several major development programmes in the North, and this project is one of them,” he remarked.

Situated just three kilometres from Jaffna town, the Columbuthurai fishing jetty is expected to strengthen the livelihoods of fisher families while transforming the surrounding village into a more vibrant and attractive settlement.

Among those present at the event were MPs K. Ilangkumar, S. Sripavanandarasa and J. Rajeevan, Municipal Councillors, Fisheries Ministry Secretary Golith Kamal Jinadasa, the Jaffna Divisional Secretary, and local residents.

The economic revival of Sri Lanka is tenuous as the country is about to have a balance of payments (BoP) crisis, and as-yet unresolved tariffs issue with the United States, and rising geopolitical alignments based on escalating ties with China.

Even after achieving short-term financial stability after a sovereign debt crisis in 2022, Sri Lanka’s path towards sustainable growth continues to be hampered by structural obstacles and tight fiscal space

 “There are only four methods that can fix the economy, one is to have a high income, second is to limit the expenditure, third is to maintain the budget deficit by managing the income and expenditure and fourth is to have an influx of foreign exchange income and minimise the outflow,”.vetran economist and former minister Bandula Gunawardana claimed. . .  

Sri Lanka is unlikely to fully bridge its projected Rs. 2 trillion budget deficit or resolve its balance of payments (BoP) crisis in 2025 due to major fiscal and monetary constraints, he predicted.  

As per Q1 2025 data, the government recorded a Rs. 498.28 billion deficit, with total revenue at Rs. 1,064.66 billion and expenditure at Rs. 1,562.94 billion. 

Borrowing is restricted by the Public Finance Management Act, and monetary financing is banned under the Central Bank Act (2023).

On the BoP front, foreign reserves remain fragile (USD 3–4 billion), and Sri Lanka continues to face external debt repayments, high import costs, and limited capital inflows. While remittances and tourism are recovering, they are not sufficient to close the external financing gap.

Despite these challenges, partial stability can be realized through continued IMF support, increased tax collections, grants, and structural reforms such as privatization of SOEs and export diversification.

The government must also complete external debt restructuring to ease pressure on reserves and restore investor confidence, he emphasised.

Sri Lanka cannot fully overcome its budget and BoP crises in 2025, but with strong reform implementation, fiscal discipline, and external support, the country can achieve gradual stabilisation and lay the groundwork for sustainable recovery by 2026–2028, he opined. .

Sri Lanka is also faced with critical fiscal constraints as it grapples to achive revenue targets outlined in the 2025 Budget while dealing with its ongoing current account deficit in the Balance of Payments (BoP), economic analysts added.

The government has to collect Rs 4.2 trillion in total revenue this year, of which Rs 3.9 trillion would be raised through taxes – an increase of 46 percent over last year. Dr. Gunawardana warns that weak tax compliance, delay in the refund of VAT, and widespread application of tax exemptions could threaten such estimates

The IMF emphasised that boosting tax compliance and reinstating an efficient VAT refund mechanism are essential to avoiding further tax hikes and preventing fiscal leakages.

 The Fund also warned that new tax exemptions should be avoided to reduce corruption risks and preserve funding for social safety nets.

At the same time, Sri Lanka’s BoP current account remains in deficit, reflecting a wider imbalance between imports and exports. As of 2024, the country recorded a US$ 1.2 billion current account shortfall, fueled by high import bills and modest foreign exchange inflows.

“The country’s dual deficits – the State Budget’s current account deficit and the BoP current account deficit – were central to the 2022 economic crisis,”  Dr Gunawardana said. adding that  addressing both fronts is critical to long-term recovery.”

Failure to meet previous IMF performance benchmarks has delayed financial support and damaged investor confidence, further complicating the economic recovery path.

The government’s four-pronged strategy is for stabilizing the economy includes: enhancing revenue collection, curtailing recurrent and capital spending, increasing foreign exchange inflows, and reducing unnecessary outflows.

Finance Ministry officials are also reviewing public sector efficiency and import restrictions to manage pressure on the rupee and foreign reserves.

As Sri Lanka navigates a fragile post-crisis recovery, fiscal discipline, transparency, and effective implementation of reforms will be key to building economic resilience and regaining international credibility.

Sri Lanka is actively pursuing a bilateral trade agreement with the United States, aiming to bolster. exports while securing tariff relief for Sri Lankan goods in agreement with President Donald Trump’s recent directive to open local market for US exports,  .

The government’s official negotiating team has adopted a targeted strategy in their ongoing talks with the U.S. Trade Representative (USTR) to mitigate the impact of the proposed 30 percent Trump-era tariffs set to take effect on August 1. 

Following the formal notification on July 9, Sri Lankan officials held a first round of talks which reportedly made “progress,” with a second virtual round is now on.

The present administration is to target sector-specific relief, to be pointed specifically towards apparel, rubber-based products, and tea exports, which form the principal affected shipments.

Insiders close to the negotiators say Sri Lanka has been presented as a US trade partner at risk of economic instability, while stressing its economic reforms, geopolitical neutrality, and regional supply chain integration.

Sri Lanka is also leveraging regional allies’ diplomatic assistance and touting U.S. economic interests that benefit from low-cost manufacturing of the country.

Meanwhile, exporters and the Joint Apparel Association Forum have urged for immediate concessions to avoid disruptions to nearly US $2 billion worth of exports.

Sri Lankan officials have also said that the loss of revenues from US imports would not be very big and non-tariff issues could be discussed, but the country generally did not have non-tariff barriers against the US.

“The United States and Sri Lanka have discussed conducting virtual engagements on labor policy reforms and agricultural barriers,”a high official said. .

Economic Development Deputy Minister Anil Jayantha Fernando’s recent claim that the United States has suggested allowing 70–80 percent of Sri Lankan exports to enter the U.S. duty-free has been questioned amid a lack of official confirmation.

Speaking at  a television program, Fernando said America had proposed a list of 1,161 Sri Lankan products—clothing and 42 agricultural items—for potential tariff-free entry, as part of the current bilateral trade negotiations.

Yet trade specialists note that the U.S. has not made any public comment in support of such a wide-ranging offer.

The US Generalised System of Preferences (GSP) of which some duty-free access expired in 2020 and is yet to be renewed by the U.S. Congress. Apparel, Sri Lanka’s most vital export, has never been brought under such concessions because it is sensitive in US trade policy.

Fernando also revealed that the negotiations are in “final phase, “which is not so at the moment. No trade deal has been signed, and U.S. trade deals are typically lengthy, prolonged negotiations, with stakeholder consultations and Congressional approval

The Minister also hinted at a new agreement in importing oil from the U.S., explaining that Sri Lanka could redirect oil payments into higher trade flows. Yet this too remains speculative, with no public or commercial agreements reported.

Observers caution that while enhanced trade with the U.S. is a welcome goal, the figures and outcomes mentioned by the minister should be treated as provisional until confirmed by both governments.