Global credit rating agency Fitch Ratings has issued a stark warning that Sri Lanka’s fragile economic recovery could be severely undermined by the latest shift in US trade policy, especially the imposition of targeted tariffs across the Asia-Pacific region.
In its latest assessment, Fitch cautions that new US tariffs are likely to place increased pressure on sovereign debt levels in countries already grappling with external vulnerabilities. Sri Lanka, which is still navigating a post-default debt restructuring and battling subdued growth, is highlighted as one of the nations most exposed to the ripple effects of Washington’s protectionist turn.
The report outlines a broader regional impact, noting that many Asia-Pacific economies are heavily reliant on export-driven growth. The introduction of new barriers in the form of reciprocal tariffs, particularly those aimed at rebalancing US-China trade, is expected to cause investment slowdowns, reduced trade volumes, and tighter capital flows.
Fitch analysts state that the pace of economic expansion in affected countries could decelerate noticeably, putting additional strain on already-stretched fiscal positions. In Sri Lanka’s case, this could further complicate debt sustainability efforts, especially as the country seeks to maintain credibility with international lenders and meet International Monetary Fund (IMF) benchmarks.
Adding to the concern, Fitch says the creditworthiness of several Asia-Pacific economies may face downward pressure, particularly if their policy responses are misaligned or insufficient. This includes how governments mitigate shocks to exports, navigate higher import costs, and manage inflationary risks.
Sri Lanka, which is still recovering from its 2022 economic collapse and default, is seen as particularly vulnerable to country-specific tariffs, given its narrow export base and high dependence on external trade and remittances. With the economy already struggling to gain traction, further disruptions in trade could slow progress and undermine the confidence of both investors and creditors.
While no specific US tariffs have yet been announced targeting Sri Lanka directly, Fitch signals that once country-specific measures are finalized, the island nation will likely be among the most exposed due to its limited fiscal buffer and high external financing needs.
As global trade dynamics shift, Sri Lanka’s policymakers now face the difficult task of strengthening economic resilience without derailing ongoing recovery efforts. The warning from Fitch arrives as a timely signal—global headwinds are gathering, and countries like Sri Lanka may be forced to recalibrate quickly or risk renewed economic instability.
