Sri Lanka plans $1.6b in cyclone recovery spending in 2026

Sri Lanka's government announced plans today (18 December) for $1.6 billion in extra spending in 2026 to fund the country's recovery from Cyclone Ditwah, which killed more than 640 people.

The natural disaster affected 2.3 million people, more than 10% of Sri Lanka's population, and floods and landslides caused by the cyclone left extensive damage throughout the country.

The government convened parliament on Thursday, interrupting a month-long recess, to discuss what President Anura Kumara Dissanayake has described as the most challenging natural disaster to hit the island.

Dissanayake presented a request for an additional 500 billion rupees ($1.66 billion) for rebuilding devastated homes, roads, bridges and railways, as well as for cash handouts to help people regain lost livelihoods.

"We need to allocate an additional 500 billion rupees for disaster relief and reconstruction over and above the money allocated for government spending in calendar 2026," Dissanayake told parliament.

The national assembly, where his party holds a more than two-thirds majority, is expected to approve the mini-budget on Friday.

However, Dissanayake said the government does not intend to raise its borrowing limit to meet the additional expenditure.

He previously said he was banking heavily on foreign grants, and the finance ministry yesterday (17 December) announced that it would call an international donor conference early next month.

The government has already asked the International Monetary Fund (IMF) for $200 million from a rapid relief fund and has secured World Bank agreement to repurpose $120 million from an ongoing project for disaster recovery spending.

On Tuesday, Sri Lanka also secured a $200 million loan from the Asian Development Bank to finance water management, the first such funding since the cyclone.

The finance ministry said the funds would be used to complete a canal network in the North-Central Province (NCP), which was among the worst affected by flooding last month.

"The objective of the project is to enhance agricultural productivity, farmer incomes and climate resilience in the NCP," the ministry said in a statement.

The World Bank has said it is in the process of assessing the damage caused by the cyclone, while Colombo has said preliminary estimates suggest it may need up to $7 billion to rebuild.

The cyclone struck as the country was emerging from its worst ever economic meltdown in 2022, when it ran out of foreign exchange reserves to pay for essential imports such as food, fuel and medicines.

Following a $2.9 billion bailout from the IMF approved in early 2023, the country's economy has stabilised.