Sri Lanka informed international bondholders on Wednesday that the US$4.1 billion impact of Cyclone Ditwah marks the first major climate stress test of its post-default recovery. The government sought to reassure investors that reconstruction spending would not derail its IMF-backed reform agenda or ongoing debt restructuring efforts.
Treasury Secretary Dr. Harshana Suriyapperuma, speaking during a global investor call with International Sovereign Bond (ISB) holders, said the cyclone struck in November 2025, affecting about a fifth of the country’s landmass and displacing more than 100,000 people. The disaster 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.
Dr. Suriyapperuma noted that the government has incorporated the full fiscal impact of recovery and reconstruction into the 2026 budget under dedicated spending lines, emphasizing transparency while maintaining medium-term consolidation targets. Total recovery needs are estimated at US$4.1 billion, with US$1.62 billion required in 2026 alone, based on joint assessments by the World Bank, Asian Development Bank, and the UN.
The cyclone also delayed IMF programme timelines. While a staff-level agreement on the fifth review was reached at the end of 2025, board approval was deferred to early 2026 to allow additional assessment of the cyclone’s economic impact. Upon completion of the review, Sri Lanka expects to access an additional US$350 million, bringing total disbursements under the Extended Fund Facility to about US$2 billion.
Dr. Suriyapperuma highlighted that Sri Lanka is close to completing its external debt restructuring, with agreements reached with creditors representing nearly 99 percent of external debt stock. In December 2024, the country exchanged 98 percent of its outstanding ISBs for new instruments, though court proceedings continue with a single holdout bondholder.
Public debt has fallen to approximately 105 percent of GDP by mid-2025, down from a peak of 145 percent in 2022, supported by debt restructuring progress and stronger nominal GDP growth. The Treasury also noted that foreign reserves continue to build, the current account has shifted into surplus, and tourism disruptions from the cyclone were temporary, with arrivals rebounding in early 2026.
