Sri Lanka’s fragile economic recovery faces new delays

Sri Lanka's fragile economic recovery will be delayed as Cyclone Ditwah's devastation of homes, roads and vital crops pushes more families into poverty, with officials warning the bill to rebuild could soar to $7 billion.

The worst economic crisis in decades, which peaked in 2022, had already doubled Sri Lanka's poverty rate to nearly 25% of its 22 million people. A $2.9 billion IMF bailout sparked a tentative rebound, with growth seen at 4.5% this year, but analysts say growth will slow to about 3% in 2026 due to Ditwah.

Striking in late-November, Ditwah is the country's deadliest natural disaster since the 2004 tsunami, killing 635 people and affecting about 10% of the population. It wrecked critical infrastructure and key crops such as rice and tea.

"Cyclone Ditwah struck regions already weakened by years of economic stress," said Azusa Kubota, United Nations Development Programme (UNDP) Resident Representative in Sri Lanka.

Recovery is likely to be slower and more costly in regions where high "flooding and high vulnerability overlap", she added.

The rebuilding bill could hit $7 billion, said Prabath Chandrakeerthi, Sri Lanka's Commissioner General of Essential Services, urging multilateral partners and donors to step in.

The government has sought $200 million in emergency funds from the IMF, which is reviewing the request. An IMF team will visit in January for a fresh assessment before releasing the sixth tranche of the original programme.

New UNDP analysis shows cyclone floodwaters have inundated almost 20% of Sri Lanka's land area and an estimated 2.3 million people living in flooded areas.

Sri Lanka cannot shoulder more debt for rebuilding, Kubota warned as she called on international partners for affordable financing to prevent the "country falling off the debt cliff".