Sri Lanka’s fragile economy could face further strain following the United States’ recent tariff hikes, warns Fitch Ratings. The global credit rating agency stated that countries with low external buffers and high debt burdens, like Sri Lanka, are particularly vulnerable to the ripple effects of the escalating US trade war.
Currently rated CCC+, Sri Lanka lacks the fiscal headroom to absorb new shocks. Fitch highlights that any decline in global export demand caused by the US tariffs, especially if it slows Asian manufacturing and trade, could undermine Sri Lanka’s already limited foreign exchange inflows.
As the US dollar strengthens, countries dependent on foreign debt, including Sri Lanka, may see their debt servicing costs rise. The pressure on foreign reserves could worsen if the Central Bank is forced to defend the rupee, Fitch warned.
With limited space for fiscal stimulus and economic recovery still underway following the 2022 crisis, Sri Lanka risks a fresh wave of financial instability if its export earnings falter amid rising global trade tensions.
