By:Staff Writer
December 22, Colombo (LNW): Sri Lanka’s plan to inject Rs. 500 billion into the economy for post-Cyclone Ditwah recovery has reignited debate over whether the country can sustain large-scale emergency spending while preserving hard-won macroeconomic stability.
President and Finance Minister Anura Kumara Dissanayake has argued that the fiscal conditions today are fundamentally different from the past, citing record revenue performance, a strong primary surplus, and the elimination of Treasury overdrafts. These improvements, he says, provide sufficient space to finance recovery efforts without triggering a debt or balance-of-payments crisis.
However, the scale of the proposed intervention presents clear economic risks that the Government itself has acknowledged. A significant portion of recovery-related spending—particularly on construction and infrastructure has a high import content. According to the President, road construction alone carries a foreign exchange component of around 18%, raising concerns about increased demand for dollars once funds are released into the domestic economy.
To mitigate these pressures, the Government plans to phase spending carefully and channel a portion of the funds into productivity-enhancing activities through a special commission. External financing will also play a critical role.
Sri Lanka has already requested $200 million from the IMF under the Rapid Financing Instrument and expects further support from the World Bank and the Asian Development Bank. Officials estimate that up to $500 million in additional foreign financing may be required in 2026 to prevent balance-of-payments stress.
Beyond macroeconomic considerations, the effectiveness of the recovery effort will depend heavily on implementation. The President has acknowledged that delivering relief at the ground level could face delays and administrative complexity, as local authorities and Grama Niladharis will be responsible for identifying beneficiaries based on multiple criteria.
The Government has announced a range of relief measures aimed at reviving business activity in cyclone-affected areas. These include refinancing bank loans for large and small businesses, working capital support, and grants for damaged premises. Poultry farmers, who suffered heavy losses, will receive compensation based on the number of birds lost, along with special assistance for backyard farmers.
While these measures are designed to restore livelihoods quickly, economists caution that weak targeting, slow disbursement, or leakages could dilute their impact and undermine public confidence.
At the same time, the Government is pinning part of its optimism on stronger external earnings. Foreign direct investment inflows are expected to reach record levels, tourism revenue is projected to surpass its 2018 peak, and merchandise exports are forecast to approach $18 billion.
As Sri Lanka awaits the World Bank’s rapid damage assessment on Ditwah, the challenge will be to strike a delicate balance supporting recovery without reigniting the vulnerabilities that led to the debt crisis in the first place.
