Sri Lanka moving closer to ‘B’ rating as growth, credit momentum hold

Thursday, 13 August 2026 00:25 - - {{hitsCtrl.values.hits}}

Softlogic Stockbrokers Equity Research sees 2026 GDP growth at 4-4.5%; 2Q growth could reach 4-5%
Private sector credit growth forecast to accelerate to about 22% in 2026
Says stronger credit growth does not signal overheating as Govt. borrowing moderates

Sri Lanka is moving closer to a sovereign credit rating upgrade to the ‘B’ category as stronger fiscal performance, declining public debt, and sustained economic and private sector credit growth strengthen the country’s credit profile, according to a Softlogic Stockbrokers Equity Research.

In its latest Sri Lanka Economic Outlook, the brokerage said economic growth remained on track after 11 consecutive quarters of expansion, forecasting GDP growth of 4-4.5% in 2026. 2Q growth could reach 4-5% year-on-year (YoY), supported by broad-based improvement in domestic activity.

Private sector credit growth is now expected to accelerate to about 22% YoY in 2026, supported by improving economic activity and stronger credit demand. Softlogic Stockbrokers said it did not view the acceleration as a sign of overheating, as moderating Government borrowing, stronger revenue mobilisation, and sustained primary surpluses should contain overall domestic credit growth.

It said this would leave further headroom for private sector credit to support economic recovery. June private sector credit disbursements amounted to Rs. 245 billion, with credit up 27.4% YoY, signalling stronger domestic demand and financial conditions.

However, interest rates are expected to remain slightly elevated in the near term after the recent policy rate hike shifted the yield curve higher, reflecting firmer inflation expectations and tighter monetary conditions. Softlogic Stockbrokers expects the Central Bank of Sri Lanka (CBSL) to continue prioritising price stability while supporting a sustainable recovery.

Against this backdrop, the brokerage said continued fiscal consolidation, declining public debt, and progress under the International Monetary Fund (IMF) program were strengthening Sri Lanka’s sovereign credit profile and bringing the country closer to a ‘B’ rating. Treasury officials expect the sovereign rating to be upgraded from ‘CCC+’ to ‘B-‘ by early 2027 following discussions with the three major international rating agencies, according to the report.

Public debt declined from 126% of GDP in 2022 to 91.6% in 2025 and has fallen further in 2026, outperforming IMF medium-term debt reduction targets, although the still-high debt-to-GDP ratio remains a key hurdle to a higher rating.

Softlogic Stockbrokers said achieving a ‘B’ rating would improve access to international capital markets and support the Government’s plan to raise $ 1.5 billion to refinance maturing external debt and meet IMF-related external financing requirements.

It believes Sri Lanka has a strong case for an upgrade if fiscal discipline, reserve accumulation, and structural reforms continue.