Sri Lanka’s fragile economic recovery has been dealt a fresh and potentially destabilising blow by Cyclone Ditwah, with the International Monetary Fund (IMF) warning that the disaster could erase between 2.5% and 5% of GDP, widen the balance of payments gap by nearly $700 million, and push inflation back above the Central Bank’s comfort zone in 2026.
In an IMF staff assessment released last week, the Fund acknowledged that estimates remain subject to wide margins of error, but stressed that the cyclone’s economic footprint is likely to be significantly larger than recent climate shocks. Damage from Ditwah is already assessed as more severe than the 2016 and 2017 floods, which required recovery spending equivalent to 1.1% and 0.8% of GDP, respectively.
The IMF projects that economic growth could slow to 2.9% in 2026, down from an estimated 4.2% in 2025, as disruptions ripple through key sectors. Agriculture and tourism jointly accounting for about 11% of GDP have been hit hardest.
Severe crop losses, destruction of livestock, and the cyclone’s timing at the start of the peak tourism season are expected to reduce output and foreign exchange inflows. While reconstruction-driven construction activity may provide a partial offset, IMF staff cautioned that this rebound would be uneven and time-bound.
Inflation has already begun to respond. Headline inflation rose to 4% year-on-year in December 2025, up from 2.1% in November, while average inflation in 2026 is projected at 5.4%, exceeding both the Central Bank’s 5% target and the IMF’s earlier forecast of 3.3%. Selected food prices have surged by 30% to 200%, echoing the 2016–17 disaster period when food inflation spiked from 3% to 14.4%.
Externally, the IMF estimates the current account deficit could widen by $700 million (0.7% of GDP) over the next year. Higher food, fuel, and reconstruction-related imports, combined with weaker tourism receipts and agricultural exports, will strain foreign exchange inflows. Although remittances are expected to rise, the IMF stressed they will only partially offset the shock.
To meet urgent financing needs, the IMF assessed $205 million in Rapid Financing Instrument (RFI) support as appropriate, against total external financing requirements of about $720 million.
Beneath the technical projections lies a clear warning. While acknowledging improved pre-cyclone fundamentals including reserves covering about three months of imports the IMF cautioned that the disaster has raised debt sustainability and external vulnerability risks.Transparency in emergency spending, strict public financial management, and disciplined investment decisions will be critical. Any slippage, the IMF implied, could undo hard-won stabilisation gains just as Sri Lanka attempts to consolidate recovery
