Moody's Review: SL Growth Momentum & Fiscal Progress Continue 📈

• Moody's completed its periodic review of Sri Lanka's Caa1 foreign-currency long-term issuer ratings, maintaining a Stable Outlook. No credit rating action was announced. • Economic Performance & Outlook: • Real GDP growth remained robust at 4.8% YoY in the first half of 2025, following 5% in 2024. • Full-year growth is projected to moderate to around 4.5%. • Growth is led by the services sector, with tourism arrivals steadily recovering to pre-pandemic levels. Strong inward remittance growth is expected to help preserve a current account surplus. • Fiscal Consolidation: • Government revenues grew strongly by 26.5% YoY in the first seven months of 2025. • Goods & Services tax revenues increased by ~33% YoY, while Income Tax revenues grew by ~8.3% YoY. Revenue was notably boosted by vehicle import duties after restrictions were removed. • The Fiscal Deficit is expected to narrow to around 6.0%-6.5% of GDP in 2025 (down from 6.8% in 2024), with the primary balance remaining in surplus. • Key Challenges: The rating remains constrained by the government's weak debt affordability and high debt burden, as well as the economy's heavy reliance on external financing and exposure to climate risks. Continued implementation of structural reforms is crucial.