Fitch rates SL’s new bonds ‘CCC+’

Fitch Ratings has assigned a ‘CCC+’ foreign-currency rating to Sri Lanka’s governance-linked bonds maturing in 2035 and a ‘CCC+’ local-currency rating to the US dollar step-up bonds maturing in 2038, which the government can decide to repay in rupees. 

Fitch said it does not rate the macro-linked bonds, which would not be in line with its sovereign rating criteria.

The ratings are in line with Sri Lanka’s Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs).

On December 20, 2024, Fitch upgraded Sri Lanka’s Long-Term Foreign-Currency IDR to ‘CCC+’, from ‘RD’ (Restricted Default). 

Fitch typically does not assign an Outlook to sovereigns with a rating of ‘CCC+’ or below. Fitch also upgraded the Long-Term Local-Currency IDR to ‘CCC+’, from ‘CCC-’, to align with the Long-Term Foreign-Currency IDR.

Sri Lanka has an ESG Relevance Score of ‘5’ for Political Stability and Rights as well as for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in Fitch’s proprietary Sovereign Rating Model. 

Sri Lanka has a medium WBGI ranking in the 38th percentile, reflecting a recent record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption.

The ratings on the bonds are sensitive to any changes in the Long-Term Foreign-Currency IDR, Fitch said. 

Factors that could lead to a downgrade include an increase in government debt/GDP, potentially reflecting an inability to further raise revenue, resulting in wider budget deficits and the inability to rebuild foreign-exchange reserves that weakens debt repayment capacity. Factors that could lead to a positive rating action are sustained decline in the general government debt/GDP ratio that is underpinned by strong implementation of a credible medium-term fiscal consolidation strategy and increase in fiscal revenue and faster economic growth.