The aftermath of Cyclone Ditwah did more than replenish Sri Lanka’s reservoirs. It exposed deep structural weaknesses in the country’s power sector that now threaten macroeconomic stability, according to the Central Bank of Sri Lanka’s (CBSL) December 2025 Economic and Social Infrastructure Digest.
While above-average rainfall in late 2024 and 2025 temporarily boosted hydropower output, the Central Bank cautions that reliance on climate-driven windfalls is a dangerous illusion. Cyclone-induced reservoir gains may have softened generation costs in the short term, but they also underscored the economy’s vulnerability to weather volatility—an increasingly common risk in a climate-stressed region.
CBSL’s central warning is blunt: without urgent reforms to the Ceylon Electricity Board (CEB) and sustained cost-reflective pricing, Sri Lanka risks repeating the fiscal and financial instability that defined its recent economic crisis.
The report strongly defends the continuation of cost-reflective electricity tariffs even beyond the IMF program, arguing that politically motivated price controls have historically transferred massive liabilities to the banking system and the Treasury. Untargeted subsidies, particularly those introduced outside the national Budget, are flagged as hidden fiscal bombs that previously detonated during the crisis years.
Tariff discipline, the Central Bank argues, is not merely about balancing CEB’s books. It is about shielding the broader economy from sudden shocks, maintaining investor confidence, and preventing destabilising debt accumulation. The report calls for a forward-looking tariff framework with transparent forecasting and timely adjustments to avoid sharp price swings that unsettle households and businesses.
Ironically, the cyclone-boosted hydropower surge also highlighted a paradox. Despite renewable potential, Sri Lanka remains heavily dependent on expensive thermal and coal generation. Electricity tariffs remain higher than regional peers, eroding industrial competitiveness even as consumers shoulder rising costs.
The CBSL notes that subsidy removal has quietly accelerated renewable adoption. Households and firms, facing true energy costs, have increasingly turned to rooftop solar and self-generation. Yet the national grid has failed to keep pace. Transmission inefficiencies, outdated infrastructure, and limited storage capacity continue to trigger both scheduled and unscheduled outages—even during periods of adequate generation.
Institutional reform is therefore central to CBSL’s prescription. The unbundling of the CEB into four state-owned entities under the Electricity Act of 2024 and its 2025 amendment is presented as a turning point. The aim: attract private capital, introduce competition, and improve governance while aligning the sector with a National Electricity and Tariff Policy.
Financial data reinforces the urgency. Despite a record Rs. 148.6 billion profit in 2024, aggressive tariff cuts through early 2025 made amid rising thermal generation costs quickly reversed gains. Losses mounted until a corrective tariff hike in June 2025 restored profitability.
Cyclone Ditwah may have filled reservoirs, but the Central Bank’s message is clear: weather cannot substitute for reform. Without structural change, the next storm economic or climatic could be far more destructive.
