Recovery held firm as US$ 4.1 bn cyclone hit economy: Govt. tells bondholders

Sri Lanka told international bondholders on Wednesday that a US$ 4.1 billion cyclone disaster has become the first major climate stress test of its post-default recovery, as the government seeks to reassure investors that reconstruction spending will not derail its IMF-backed reform path or debt restructuring efforts.

Treasury Secretary Dr. Harshana Suriyapperuma, speaking at a global investor call with International Sovereign Bond (ISB) holders said Cyclone Ditwah, one of the most destructive climate events recorded in recent decades, struck in November 2025, affecting about a fifth of the country’s landmass and displacing more than 100,000 people.

The cyclone caused an estimated US$ 4.1 billion in damage to housing, transport networks, electricity infrastructure and social facilities, with transport and housing among the hardest-hit sectors, according to rapid assessments by the United Nations and the World Bank.

Suriyapperuma said the government had incorporated the full fiscal impact of recovery and reconstruction into the 2026 budget under dedicated spending lines, framing the move as part of a broader push for transparency while maintaining its medium-term consolidation targets.

Sri Lanka’s total recovery needs are estimated at US$ 4.1 billion, with US$ 1.62 billion required in 2026 alone, in line with joint assessments by the World Bank, Asian Development Bank and the UN.

The disaster also delayed IMF programme timelines, with the Fund reaching a staff-level agreement on its fifth review at the end of 2025, but deferring board approval into early 2026 to allow more time to assess cyclone-related economic effects.

Upon completion of the review, Sri Lanka expects access to an additional US$ 350 million, bringing total IMF disbursements under the Extended Fund Facility to about US$ 2 billion.

Suriyapperuma said Sri Lanka was close to completing its external debt restructuring, with agreements reached with creditors representing nearly 99 percent of external debt stock. The country exchanged 98 percent of its outstanding ISBs for new instruments in December 2024, though court proceedings remain ongoing with a sole holdout bondholder.

Public debt has fallen to about 105 percent of GDP by mid-2025 from a peak of 145 percent in 2022, supported by restructuring progress and stronger nominal GDP growth.

The Treasury said foreign reserves continue to build and the current account has shifted into surplus, while tourism disruptions from the cyclone were temporary, with arrivals rebounding in early 2026.