By: Staff Writer
December 18, Colombo (LNW): The Cabinet’s decision to revive the Lower Malwathu Oya multipurpose development project is not merely about resuming stalled construction; it is a test of Sri Lanka’s ability to deliver large-scale infrastructure amid fragile economic conditions.
Approved in July 2019 at Rs. 22.9 billion, the project’s cost has risen to Rs. 47.18 billion by December 2025, underscoring how macroeconomic instability can dramatically alter public investment outcomes. The more than 106 percent increase in rupee costs cannot be attributed to construction inflation alone. Instead, it mirrors the collapse of the domestic currency following policy missteps that destabilized the economy.
Between 2019 and 2025, Sri Lanka attempted to operate an independent monetary policy under a flexible inflation-targeting framework while preventing the currency from adjusting freely. Aggressive interest-rate cuts, extensive money creation through open market operations, and sweeping tax reductions to boost growth combined to weaken fiscal and external balances. The result was a rapid depreciation of the rupee from 176 to over 300 per dollar and eventual sovereign default.
For infrastructure projects like Lower Malwathu Oya, this depreciation translated directly into higher costs for imported machinery, construction inputs, and foreign-funded components. Delays caused by the pandemic and foreign exchange shortages compounded the problem, leaving the project suspended at a critical stage.
Yet the economic rationale for completing the project remains strong. The scheme is designed to transform water management in the Malwathu Oya basin by expanding irrigation to tens of thousands of acres, improving agricultural productivity, and enabling cultivation during dry seasons. In regions where farming remains the primary livelihood, such gains can have multiplier effects on rural employment, food prices, and regional growth.
The hydro power component, though modest at 4.28 gigawatts, contributes to energy diversification and supports Sri Lanka’s transition toward renewables. Meanwhile, the provision of two million cubic metres of drinking water carries long-term social and health benefits that are difficult to quantify but economically significant.
However, economists warn that infrastructure sustainability depends not only on physical outcomes but also on policy credibility. Without reforms that prevent future currency collapses, similar projects could face escalating costs, reduced returns, and funding constraints. The Lower Malwathu Oya project thus highlights the hidden cost of macroeconomic instability: when policy errors inflate development spending, taxpayers ultimately bear the burden.
As construction resumes, the project’s success will hinge on whether Sri Lanka can maintain financial discipline and avoid repeating the conditions that once brought it to a halt
