Indian Council of World Affairs

Sri Lanka is facing a climate-induced economic disaster amidst the ongoing efforts at economic recovery mainly supported by the International Monetary Fund (IMF)-led programme. Cyclone “Ditwah”, which hit Sri Lanka in late November 2025, was described by the President of Sri Lanka, Anura Kumara Dissanayake, as “one of the largest and most challenging natural disasters in Sri Lanka’s history”.[1] It left over 600 dead and caused widespread floods and deadly landslides across the nine provinces of the island nation and inflicted extensive damage to infrastructure, livelihoods, and key sectors of the economy. Nearly 2.2 million people were affected by the cyclone[2]. 

The United Nations Humanitarian Priorities Plan (HPP), that was launched in December 2025 to aid victims of cyclone could raise $ 22.4 million so far.[3] The government’s initial estimated cost to support the victims of cyclone stands at nearly $33 million.[4] Given the scale of destruction and its impact on the overall economy of Sri Lanka, concerns have arisen regarding the durability and sustainability of the IMF guided economic reform programme.

IMF Assurances to Sri Lanka

In 2022, Sri Lanka faced an unprecedented economic crisis and, for the first time in its history, declared bankruptcy. In response international financial institutions and Sri Lanka’s bilateral partners stepped in to save the economy from total collapse at the government’s request. In 2023, the IMF approved a 48-month Extended Fund Facility (EFF) arrangement of about $3 billion.[5] The IMF bailout package to Sri Lanka, forms an important component of Sri Lanka’s economic recovery process, together with the debt restructuring agreements signed with bilateral donors. The IMF, under the EFF arrangement, has so far extended about $1.74 billion to Sri Lanka to address the economic recovery process.[6]

In the wake of the cyclone Ditwah, the IMF delegation visited Sri Lanka (22–28 January 2026) to assess the impact of the cyclone. The IMF team interacted with relevant stakeholders to understand the economic and social impact of the cyclone to support Sri Lankan government’s recovery and reconstruction efforts under the agreed EFF arrangement.[7] Most importantly, the IMF team assured Sri Lanka of the continuation of the IMF’s economic reform programme under the agreed-upon EFF arrangement without making any change. The visit also underlined the importance of IMF-led structural reforms and spending of public finances in compliance with Sri Lanka’s Public Financial Management Act (PFMA). In 2024, the Sri Lankan government passed the PFM bill to ensure transparency and accountability in managing public finances.[8] Prior to the visit in December 2025, the IMF had approved emergency funding of $206 million under its rapid finance instrument to ‘address the urgent needs arising from the catastrophic cyclone.’[9] The IMF also deferred the fifth review due in late 2025 under the EFF arrangement, owing to the situation in Sri Lanka.

Response to IMF-led Reforms amidst the Disaster Relief

The World Bank estimated direct damage to the tune of $4.1 billion from the cyclone.[10] Following the cyclone, the Sri Lankan government established a “Rebuilding Sri Lanka Fund”, under the presidential secretariat.[11] The fund is governed by a joint government-private sector management committee, comprising representatives from both the public and private sectors, to address post-disaster rehabilitation and reconstruction efforts[12]. By early January, the fund received a total financial contributions worth LKR. 8.5 billion, donated by individuals and organisations from 47 countries.[13] India, as a first responder, took a leading role in immediate emergency relief and reconstruction efforts by pledging a package of $450 million under “Operation Sagar Bandhu”.[14] International humanitarian organisations have also extended help to the government in its relief efforts.

However, the impact of Cyclone Ditwah on Sri Lanka’s economy amidst the IMF-led economic recovery process raised concerns among civil society and a few opposition parties in Sri Lanka. The opposition Samagi Jana Balawegaya (SJB) asked the government to dedicate a ministry to manage disaster-related affairs and [15] suggested to renegotiate the IMF programme. The SJB leader Sajith Premadasa also demanded that the government should withdraw the 2026 budget to present a fresh budget that can be tailored to the scale of the destruction caused by the cyclone.[16] Twenty-five opposition MPs submitted a petition for the appointment of a select committee to examine the government’s response to the cyclone, as well as the effectiveness of preparedness measures implemented in advance of the natural disaster.[17]

More than  70 civil society organisations and activists, along with opposition parties,  also appealed to the government and the IMF to renegotiate the deal following the natural disaster.[18] Civil society actors warned of the possibility of large-scale food shortages in the coming months, due to severe damage to agriculture.[19]  Therefore, it urged the government to immediately  review the austerity measures implemented under the IMF-led economic reforms, including subsidy removals, privatisation and limitations on state spending, to protect  these economically and socially marginalised communities, such as plantation workers in the central hill region of Sri Lanka. In addition, more than 100 economists worldwide have also called for suspension of Sri Lanka’s debt payments.[20] Their statement argued “by prioritising debt service continuity over deep debt relief, the IMF programme is perpetuating structural exposure of Sri Lanka’s economy and population to future disasters.”[21] Therefore, they demanded to “recognise climate-driven disasters as systemic, not exceptional, shocks and provide significant debt cancellation.”[22]

Nonetheless, despite the concerns flagged by opposition and civil society actors, people of Sri Lanka appear to be appreciative of the efforts taken by the government under the leadership of the President of Sri Lanka. A survey conducted by the Social Scientists’ Association (SSA) based in Colombo, found that seventy percent of respondents across 25 districts of Sri Lanka expressed satisfaction with the government’s response to the devastation caused by the cyclone.[23] Respondents were particularly appreciative of the President of Sri Lanka’s actions in rescue operations, emergency response, distribution of relief supplies, and restoration of essential services[24]. However, they felt that the government could have acted more quickly in terms of early warning, evacuation, recovery, and rebuilding efforts.[25]

Amidst the concerns raised, the Central Bank of Sri Lanka projected a growth rate of around 4 to 5 per cent in 2026, supported by lower inflation, healthier foreign exchange reserves ($6.8 billion) and stronger macroeconomic buffers.[26] Yet, Sri Lanka’s economy, according to the IMF, remains vulnerable, as the Gross Domestic Product (GDP) of Sri Lanka is yet to catch up with pre- economic crisis level.[27]

Conclusion

The government’s plan to convene a global aid conference is yet to materialise. It is also finalising the completing the Post-Disaster Needs Assessment (PDNA), to ascertain the overall cost in damages due to cyclone. Despite the concerns expressed by different quarters, the government seems determined to implement the IMF-led economic reform programme and is also confident that it can address natural-disaster-related recovery and restoration. Given the scale of destruction due to Cyclone Ditwah, the question remains: will the fragile economy of Sri Lanka be able to sustain the burden of import costs, diminished revenue, and reconstruction costs in the future?

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*Dr. Samatha Mallempati, Research Fellow, Indian Council of World Affairs (ICWA)
Disclaimer: The views expressed are personal.

Endnotes

[1] The Guardian, “Top economists call for halt to Sri Lanka debt repayments after Cyclone Ditwah”, 21 December 2025, https://www.theguardian.com/business/2025/dec/21/top-economists-sri-lanka-debt-repayments-restructuring-cyclone-ditwah. Assessed on January 30, 2026.

[2] UNICEF Sri Lanka Humanitarian Situation Report No. 5, CYCLONE DITWAH, December 26, 2025, https://www.unicef.org/media/177696/file/Sri-Lanka-Humanitarian-Situation-Report-No.5-(Cyclone-DITWAH),-26-December-2025.pdf. Assessed on January 29, 2026.

[3] The Island, “UN receives USD 22.4 million for Sri Lankan Ditwah victims”, 9 February 2026, https://island.lk/un-receives-usd-22-4-million-for-sri-lankan-ditwah-victims/

[4] Ibid.

[5] International Monitory Fund, “IMF Executive Board Approves US$3 Billion Under the New Extended Fund Facility (EFF) Arrangement for Sri Lanka”, March 20, 2023, https://www.imf.org/en/news/articles/2023/03/20/pr2379-imf-executive-board-approves-under-the-new-eff-arrangement-for-sri-lanka. Assessed on January 23 and 30, 2026.

[6] International Monitory Fund, “IMF Staff Concludes Visit to Sri Lanka”, January 28, 2026, https://www.imf.org/en/news/articles/2026/01/27/pr-26022-sri-lanka-imf-staff-concludes-visit. Assessed on February 2, 2026.

[7] International Monitory Fund, “IMF Staff Concludes Visit to Sri Lanka”, January 28, 2026, https://www.imf.org/en/news/articles/2026/01/27/pr-26022-sri-lanka-imf-staff-concludes-visit. Assessed on February 2, 2026.

[8] The Ceylon Chamber of Commerce, “Overview of the Public Financial Management Bill 2024”, June 2024, https://www.chamber.lk/wp-content/uploads/2024/06/Overview-and-Summary-of-the-Public-Finance-Management-Bill-2024_Sanjaya.pdf. Assessed on January 25, 2026.

[9] International Monetary Fund, “IMF Executive Board Approves US$206 Million in Emergency Financial Support for Sri Lanka”, 19 December 2025, https://www.imf.org/en/news/articles/2025/12/19/pr-25436-sri-lanka-imf-approves-us-206-million-in-emergency-financial-support. Assessed on January 20, 2026.

[10] “Damage from Cyclone Ditwah in Sri Lanka Estimated at $4.1 Billion”, December 22, 2025, https://www.worldbank.org/en/news/press-release/2025/12/22/damage-from-cyclone-ditwah-in-sri-lanka-estimated-at-4-1-billion. Assessed on January 30, 2026.

[11] News Wire, “Rebuilding Sri Lanka’ Fund Established: Committee announced”, December 1, 2025, https://www.newswire.lk/2025/12/01/rebuilding-sri-lanka-fund-established-committee-announced/. Assessed on January 29, 2026

[12] “Rebuilding Sri Lanka’ National Initiative Launched Under the Patronage of the President”, https://rebuildingsrilanka.gov.lk/rebuilding-sri-lanka-national-initiative-launched-under-the-patronage-of-the-president.php. Assessed on February 2, 2026.

[13]  Daily Ft, “Rebuilding Sri Lanka Fund exceeds Rs. 8.5 b, aid goods Rs. 23 b”, 9 February 2026, https://www.ft.lk/front-page/Rebuilding-Sri-Lanka-Fund-exceeds-Rs-8-5-b-aid-goods-Rs-23-b/44-787355.

[14] The Ministry of External Affairs, the Government of India, “Press Statement by EAM Dr. S. Jaishankar alongside Foreign Minister Vijitha Herath of Sri Lanka”, December 23, 2025, https://www.mea.gov.in/Speeches-Statements.htm?dtl/40557/Press_Statement_by_EAM_Dr_S_Jaishankar_alongside_Foreign_Minister_Vijitha_Herath_of_Sri_Lanka. Assessed on January 29, 2026.

[15] Ceylon Today, “Sajith calls for Disaster Management Ministry after Cyclone Ditwah”, December 31, 2025, https://ceylontoday.lk/2025/12/31/sajith-calls-for-disaster-management-ministry-after-cyclone-ditwah/. Assessed on January 31, 2026.

[16] Daily FT, “Sajith, Harsha split on Budget, IMF and response to Ditwah crisis”, December 4, 2025, https://www.ft.lk/front-page/Sajith-Harsha-split-on-Budget-IMF-and-respaonse-to-Ditwah-crisis/44-785212. Assessed on January 25, 2026.

[17] Sarva Rajan, “Beyond bailouts: How Sri Lanka can build a sustainable economy and avoid 2027 IMF cliff”, February 2, 2026, https://www.ft.lk/opinion/Beyond-bailouts-How-Sri-Lanka-can-build-a-sustainable-economy-and-avoid-2027-IMF-cliff/14-787773. Assessed on February 4, 2026.

[18]Meera Srinivasan, “Cyclone impact sparks fresh calls in Sri Lanka to recast IMF deal”, December 9, 2025, https://www.thehindu.com/news/international/cyclone-impact-sparks-fresh-calls-in-sri-lanka-to-recast-imf-deal/article70376168.ece. Assessed on February 1, 2026.

[19] “People of Sri Lanka demand renegotiation of the IMF deal, debt, and climate justice in the face of the national disaster”, December 10, 2025, https://www.cadtm.org/People-of-Sri-Lanka-demand-renegotiation-of-the-IMF-deal-debt-and-climate. Assessed on February 2, 2026.

[20] Institute of Political Economy, “Statement by leading economists and academics on Sri Lanka’s Climate Crisis and IMF Restructuring Deal “, December 2025, https://ipe-sl.org/wp-content/uploads/2025/12/121-Experts-Statement.pdf. Assessed on January 30, 2026

[21] Ibid

[22] Institute of Political Economy, Op.cit. No.19.

[23]  Social Scientist Association, “Cyclone Ditwah Impact, Response and Recovery: Survey Findings of Sri Lankan Public Perceptions”, January 2026, https://ssalanka.org/wp-content/uploads/2026/01/Survey-Findings-on-Ditwah-30th-Jan_Final.pdf. Accessed February 3, 2026.

[24] According to the SSA, its report findings are drawn from Island-wide survey conducted in early to mid-January 2026 across all twenty-five districts. SSA took a sample size of 1,251 respondents and it was designed to reflect the ethnic composition and population distribution of each district.

[25] Daily Ft, “Survey of citizens’ perceptions of responses to Cyclone Ditwah”, January 31, 2026, https://www.ft.lk/front-page/Survey-of-citizens-perceptions-of-responses-to-Cyclone-Ditwah/44-787745. Assessed on February 1, 2026.

[26] “Sri Lanka Economic Growth 2026 Set for Strong 4–5% Rise’, 2 February 2026, https://srilankabiz.lk/sri-lanka-economic-growth-2026-set-for-strong-4-5-rise/. Assessed on February 3, 2026.

[27] International Monetary Fund, “IMF Executive Board Approves US$206 Million in Emergency Financial Support for Sri Lanka”, 19 December 2025, https://www.imf.org/en/news/articles/2025/12/19/pr-25436-sri-lanka-imf-approves-us-206-million-in-emergency-financial-support. Assessed on January 30, 2026