Colombo, July 31 (Daily Mirror) - S&P Global Ratings’ decision early this week to affirm Sri Lanka’s long-term and short-term foreign and local currency sovereign credit ratings at CCC+/C, with a stable outlook, is undoubtedly a positive development. The agency cited the country’s resilience despite significant external challenges, reflecting the progress made since the economic collapse and sovereign default in 2022.
The Government deserves recognition for several important achievements. Fiscal discipline has improved, inflation has been brought under control, foreign exchange reserves have strengthened, and, importantly, the country’s domestic revenue collection has improved significantly. Strengthening internal income through better tax administration and fiscal management has been one of the key successes of the economic reform programme. This has contributed to restoring confidence in the country’s public finances and has helped stabilize the economy.
However, while Sri Lanka has clearly moved away from the brink of default, it is equally important not to overstate where the country stands today. A CCC+ sovereign credit rating represents an improvement from default, but it remains firmly within the highly speculative category. It is not yet a rating that signifies a strong, sustainable recovery.
A CCC+ rating indicates that the country continues to carry very high credit risk and remains vulnerable to adverse economic or financial developments. Should economic conditions deteriorate, there remains a real possibility of financial distress. Consequently, international investors and lenders continue to view Sri Lanka as a high-risk destination.
Moreover, the economy is still growing too slowly and has yet to reach the pace anticipated under the IMF-supported reform programme. Economic stabilisation is an essential first step, but stabilisation alone does not create prosperity. The next challenge is achieving sustained economic growth.
One of the most important drivers of that growth is Foreign Direct Investment (FDI).
While improved domestic revenue is essential for fiscal sustainability, it is not sufficient on its own to generate the level of investment needed to transform the economy.
Unfortunately, Sri Lanka’s current sovereign credit rating remains a significant obstacle to attracting large volumes of FDI.
A CCC+ rating signals to international investors that the country presents a high level of financial risk. Investors therefore demand substantially higher returns before committing capital. International banks will not comfortable to provide financing. Even in extra circumstances they do, such lending usually comes with higher interest rates, stronger collateral requirements, stricter loan covenants, shorter repayment periods and tighter lending limits. These conditions inevitably increase the cost of doing business and reduce Sri Lanka’s competitiveness as an investment destination.
Global investors have many options. When countries with stronger credit ratings offer lower risk and greater policy certainty, capital naturally flows towards those markets. This is why improving Sri Lanka’s sovereign creditworthiness is not merely a matter of national prestige—it is an economic necessity.
The path forward is therefore clear. Sri Lanka must continue strengthening fiscal discipline, maintain policy consistency, complete debt restructuring, implement structural reforms, improve governance, enhance the ease of doing business and provide a stable and predictable investment climate. These measures will gradually improve investor confidence and help secure higher sovereign credit ratings.
The Government has already made meaningful progress in restoring macroeconomic stability, and that progress deserves recognition. But stabilisation is only the foundation. The ultimate objective must be a stronger economy capable of attracting substantial Foreign Direct Investment, creating productive employment, increasing exports and delivering sustained improvements in the quality of life of all Sri Lankans.
The affirmation of the CCC+/C rating should therefore be viewed neither with undue pessimism nor excessive celebration. It is an important milestone on the road to recovery—but it is not the destination. The real measure of success will be when Sri Lanka earns investment-grade confidence from global investors, becomes a preferred destination for Foreign Direct Investment and achieves the sustained economic growth that its people deserve. The writer is former Diplomat Ambassador Kana Kananathan is a businessman and lobbyist with over four decades of experience in the African continent. A long-time resident of Africa, he served as Sri Lanka’s envoy to Kenya, with concurrent accreditation to 22 African Nations and was the permanent representative to UN Habitat and UN environmental Programme. Over the years, he has been the Elections Monitor across the continent, working closely with African governments, and built enduring partnerships with African leaders. He also served as Economic and investments Advisor to former President Professor Alpha Condé of the Republic of Guinea)
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