Sri Lanka can expect to see a further sovereign ratings upgrade to B+ in 2027, under a bull case scenario – which would require a permanent ceasefire in the Middle East conflict and Sri Lanka sustaining GDP growth above 5% for the next 2-3 years, First Capital Vice President – Research Ranjan Ranatunga said, speaking on a webinar recently.
“This will take place in an event where we will possibly see a permanent ceasefire coming in. We will [need] see GDP growth of Sri Lanka to be above 5% and stay there for at least a 2-3 year period,” Ranatunga said. “If those scenarios come into play, we'll also possibly see another rating upgrade happening.”
While Sri Lanka’s GDP growth in Q1 2026 was 5.1%, Q2 growth slowed to 4.2%. The Department of Census and Statistics (DCS) in its National Accounts Estimates report for the quarter attributed the subdued performance to escalating tensions in the Middle East; shortage in crude oil supply, dampened tourism performance, contracted agricultural activity and diminished growth in other sectors.
Ranatunga commented on the unlikelihood of an upgrade in the short-run, however noting that with the noticeable reversal of the trend of foreign selling in the equities market, foreign investment may begin to look up. “Right now we don't feel [there’s] space for [a] rating upgrade, it is unlikely right now, but if everything pans out well, we will even see a rating upgrade coming and us moving into the B+ level.”
Fitch’s upgrade to B- in September 2026 has triggered a recalibration of its Sri Lankan national rating scale, a technical adjustment that affects domestic issuer ratings but does not signify a further sovereign upgrade.
“We are more or less an investment-grade country – foreigners will start to look at Sri Lanka again. Right now, if you look at the stock market, we have seen a net foreign outflow of around Rs. 56 billion so far for the, [and] this [is] starting to get reversed.”
Between January and August, while cumulative net foreign outflows from the Colombo Stock Exchange doubled compared to the outflows of the same time last year – reaching Rs 55.7 billion, outflows eased down to Rs 1.55 billion in September, according to the data released by the CSE.
Ranatunga also said that under the upside scenario, ASPI has the likelihood of moving towards the 26,000 to 27,000 threshold next year. “So if all those things play out well and if the signs are correct and good, we will see a bull case even taking place in the market and [the] market moving to 26,000-27,000.”
He further mentioned a relatively steady likelihood of the CBSL maintaining its Overnight Policy Rate at 8.75%. Ranatunga’s B+ path is a conditional scenario, not a forecast made by the research unit.