Sri Lanka continues to have a selective default rating with S&P Global Ratings, due to its defaulted $ 175 million SriLankan Airlines bond, Committee on Public Finance (COPF) Chairperson Harsha de Silva said on Friday (22).

“We are still in a default rating with S&P because we defaulted on the SriLankan Airlines bond of $ 175 million. As a country we have not come out of a state of default according to one of the foremost credit rating agencies,” de Silva told committee members during a meeting.

In December of 2024, S&P released a statement explaining that it was keeping Sri Lanka’s sovereign rating at selective default as it is yet to restructure its SriLankan Airlines bond, though it may then onwards rate issued bonds at “CCC+”.

“The rating would reflect Sri Lanka’s creditworthiness post-restructuring,” the issued statement said.

“We could raise our long-term foreign currency sovereign credit rating once Sri Lanka completes the restructuring of its remaining foreign currency-denominated commercial debt, including the government-guaranteed bond that SriLankan Airlines issued,” the ratings agency explained.

In the same month, Fitch Ratings upgraded Sri Lanka’s sovereign rating, ranking its Long-term foreign-currency IDR from a restricted default to “CCC+”. Moody’s ratings upgraded Sri Lanka’s long-term currency issuer ratings from “Ca” to “Caa1”, signalling a stable outlook.

“On what conditions will S&P take us out of a default? They have told the world that Sri Lanka is still in default according to S&P. How will the sovereign rating be removed from default? If you’re not willing to take it, because that will disturb the DSA,” de Silva asked, referring to the Debt Sustainability Analysis prepared by the International Monetary Fund (IMF).

“Does SriLankan Airlines have the relevant capability to start making the relevant payments?”

Deputy Secretary to Treasury Ananda Seneviratne explained that the government at present is dealing with two debts accrued by the SriLankan.

“There are two debts of the Sri Lankan. One is the debt in the state bank - which we are restructuring with budget proposals, similar to the treatment we have applied to the CPCs (Ceylon Petroleum Corporation) debt, which means that it is to be settled within five years,” he said.

“The $ 175 million in ISB guarantor loans is also in the process of being restructured with ongoing - which has not yet been finalised,” he concluded.

“Since it is dealt with within the primary balance, it won’t affect the DSA. We don’t know if the lenders will request that it be taken. If they are comfortable with it, it will be dealt with in the primary balance itself. But if it is taken to the debt stock, then it will affect the debt stock.”