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Sri Lanka’s post-Ditwah recovery plan is being framed by the Government as proof that the country has finally broken free from its cycle of fiscal recklessness. With Rs. 500 billion earmarked for reconstruction and relief, and emergency IMF financing in the pipeline, the administration insists that disaster spending will not derail economic stability in 2026. The deeper question, however, is whether this moment will be used merely to repair damage or to fix long-standing structural weaknesses.

President Anura Kumara Dissanayake’s defence of the supplementary estimate rests on a historic fiscal correction. Chronic Treasury overdrafts that once exceeded Rs. 800 billion have been eliminated, replaced by a surplus that provides unprecedented flexibility. Revenue performance has exceeded expectations, borrowing limits have not been breached, and the primary balance has swung decisively into surplus.

This fiscal discipline gives Sri Lanka room to act but room alone does not guarantee results. Disaster-driven spending has a mixed track record globally. While it can stimulate short-term growth, poorly targeted expenditure often fuels imports, inflation, and leakages, leaving little lasting economic value. Sri Lanka’s challenge is to ensure that Ditwah recovery funds do more than restore the status quo.

The Government’s emphasis on shifting from donation-based recovery to investment-led reconstruction signals an awareness of this risk. Plans to refinance affected businesses, inject working capital, and compensate farmers are designed to restart economic activity quickly. Yet without careful targeting, such measures could entrench inefficiencies rather than boost productivity.

The external financing strategy will be equally decisive. The IMF’s Rapid Financing Facility provides short-term relief, but it is not a substitute for long-term reforms. Additional support from multilateral lenders will likely come with expectations of transparency, monitoring, and results—especially as Sri Lanka seeks to avoid a repeat of past aid-fuelled distortions.

 

The timing is critical. Recovery spending will coincide with rising import demand, construction activity, and consumption pressures in 2026. Even with strong tourism and export earnings, the margin for error remains thin. A misstep could quickly translate into currency pressure or renewed inflation, undermining public confidence in the recovery narrative.

Ultimately, Ditwah has forced Sri Lanka into a stress test of its post-crisis economic model. If recovery funds are used to modernise infrastructure, strengthen climate resilience, and crowd in private investment, the disaster could become a turning point. If not, the country risks slipping back into a familiar cycle of spending surges followed by painful corrections.

The Parliament of Sri Lanka has announced an extended recess for Members of Parliament and parliamentary staff.

Accordingly, a 17-day holiday has been approved for Members of Parliament, while parliamentary staff will receive a two-day leave.

On 18 December 2025, a supplementary estimate was presented to Parliament to facilitate the restoration of public services following the recent emergency disaster situation. The estimate was officially approved after a parliament debate held on 19 December.

Following the approval, Parliament was adjourned until 9:30 AM on 6 January 2026.

Under the authority of the Speaker, parliamentary staff have been granted special leave on 22 and 23 December, as communicated through an official circular. 

Under the authority of the Speaker, parliamentary staff have been granted special leave on 22 and 23 December, as communicated through an official circular. These dates are in addition to previously declared holidays on 24 and 26 December.

(Adaderana.lk)

The Civil Appellate High Court of the Western Province has refused leave to appeal and interim relief sought against Home Lands Group’s flagship Pentara Residences project in Thummulla, Colombo, delivering a significant legal victory for the developer and allowing construction to proceed uninterrupted.

In an order dated 11 December 2025, the Court dismissed all applications filed by residents living near the construction site, upholding an earlier ruling by the Colombo District Court. The appellate bench ruled that the lower court had acted correctly in declining to issue urgent enjoining orders and in deciding to hear both parties fully at the stage of interim injunctive relief.

The Court further observed that the petitioners’ actions appeared calculated to circumvent the equitable principle that “delay defeats equity.” It noted that construction had been ongoing for several months before the applications were filed, undermining claims of urgency that would justify immediate judicial intervention.

Residents in the vicinity of the project had raised concerns over excessive noise, vibration and dust arising from piling, excavation and the use of heavy machinery. On this basis, they sought urgent court orders to halt construction pending the outcome of legal proceedings, arguing that the works interfered with their health and the peaceful enjoyment of their properties.

However, the District Court found that the construction had already progressed for a considerable period and ruled that the threshold of urgency required to grant an enjoining order had not been met. Instead, it directed that the matter be taken up after notice, allowing both sides to present their cases at the interim injunction stage.

In affirming this reasoning, the Civil Appellate High Court highlighted that the plaint itself acknowledged inspections and inquiries conducted by multiple state institutions, including the National Building Research Organisation (NBRO), the Central Environmental Authority (CEA), and the Electro Technology Laboratory. These agencies had examined the residents’ complaints prior to the filing of court action.

The plaintiffs who filed 12 separate cases—include several professionals and homeowners residing in close proximity to the development site. Despite the multiplicity of applications, the appellate court refused leave to appeal in all cases and awarded costs against the petitioners.

Pentara Residences is a 40-storey twin-tower luxury residential development approved by the Board of Investment, with a total investment estimated between US$100 million and US$110 million. Home Lands Group acquired nearly one acre of prime Colombo land for the project at Rs. 4.5 billion, marking the largest land transaction ever recorded in the city.

The project, backed by Hatton National Bank PLC, commenced construction after receiving development approval from the Urban Development Authority and securing all statutory and environmental clearances, including NBRO and Environmental Consultative Committee approvals.

Legal representation for Home Lands was led by President’s Counsels Ali Sabry, Kushan De Alwis and Eraj De Silva, while the residents were represented by President’s Counsel Kuvera de Zoysa and his legal team.

Sri Lanka’s debate over MSME financing has entered a new phase, with the Industry and Entrepreneurship Development Ministry rolling out emergency relief measures even as fundamental disagreements over lending rates remain unresolved.

On one side, MSME associations continue to argue that licensed banks have failed to transmit policy rate reductions fairly, keeping borrowing costs elevated despite easing monetary conditions. On the other, the Industry Ministry and financial authorities stress that immediate relief, stability of the banking system, and risk management must take precedence as the economy navigates post-crisis recovery and climate-related shocks.

The Ceylon Federation of MSMEs has consistently highlighted what it describes as a structural distortion in the interest-rate transmission mechanism following the 2022 crisis. While acknowledging that aggressive monetary tightening was unavoidable at the time, the Federation maintains that subsequent policy easing has not translated proportionately into lower lending rates for small and medium enterprises. According to its submission, the gap between policy rates and market lending rates continues to burden MSMEs, constraining recovery, investment and employment.

The Federation has further questioned the justification for sustained lending spreads, pointing to improved profitability in several licensed commercial banks during the same period. It has urged regulators to exercise supervisory powers more actively and has called for redress mechanisms, including the reversal of what it considers excess interest charged to MSME borrowers.

Against this backdrop, the Industry and Entrepreneurship Development Ministry has taken a more pragmatic stance, prioritising immediate cash-flow relief for businesses affected by Cyclone Ditwah. At a special meeting chaired by Minister Sunil Handunneththi, banks agreed to extend loan repayment periods by three to six months without imposing additional interest or penalties, in line with a Central Bank circular.

From the Ministry’s perspective, these measures demonstrate responsiveness to MSME distress while preserving financial sector stability. Officials argue that banks continue to face legacy risks from the crisis period and must balance credit support with prudent lending practices. Rather than focusing solely on past rate differentials, the Ministry has emphasised coordinated solutions, including concessional lending schemes recommended by the Central Bank.

The agreement to establish a shared database of distressed businesses reflects this approach. By improving information flow between banks and the Ministry, authorities aim to target relief more effectively and avoid delays or duplication. Weekly reviews have been planned to monitor implementation and adjust policies where necessary.

While MSME representatives welcome short-term relief, they caution that repayment extensions alone do not address the underlying issue of credit affordability. The ongoing tension highlights a broader policy challenge: reconciling MSME demands for cheaper credit with the Government’s emphasis on financial stability and orderly recovery.

As relief measures take effect, the effectiveness of these interventions—and whether they can coexist with deeper reforms to lending practices will be closely watched by both entrepreneurs and policymakers.

Sri Lanka’s growing exposure to climate-related disasters has intensified scrutiny of how the State manages revenue during emergencies. Amid cyclone-induced spending pressures, GovPay the Government’s digital payment platform has become a focal point in debates over fiscal resilience, transparency, and long-term sustainability.

Launched less than a year ago, GovPay’s transaction value crossed Rs. 2 billion by the end of 2025, reflecting strong institutional uptake and public adoption. Supporters argue that this rapid growth demonstrates how digital infrastructure can stabilise revenue flows when traditional collection mechanisms are disrupted by disasters.

From an economic perspective, GovPay addresses a chronic weakness in Sri Lanka’s public finance system: fragmented, cash-heavy revenue collection vulnerable to delays and leakages. During disaster periods, these inefficiencies are amplified. Digitisation, by contrast, enables immediate settlement, automated reconciliation, and real-time monitoring—features that become critical when emergency spending must be carefully managed.

The platform’s performance during cyclone response efforts reinforced this argument. Digital donations collected through GovPay ensured traceability and reduced administrative overheads, while enabling overseas contributions without intermediary costs. In a crisis where public confidence matters as much as funding, transparency became a fiscal asset.

Yet the platform’s limitations are equally clear. Rs. 2 billion, while symbolically important, is negligible compared to the fiscal burden of disaster recovery, which runs into hundreds of billions of rupees. GovPay cannot replace concessional financing, insurance mechanisms, or international aid. Its contribution is structural rather than quantitative.

There are also execution risks. Nationwide rollout delays partly caused by adverse weather highlight the vulnerability of digital initiatives to the same disruptions they aim to mitigate. Ensuring continuity, cybersecurity, and institutional readiness remains a challenge, especially at local government level.

Still, GovPay’s expansion into traffic fines, universities, and local authorities signals a deeper transformation. By embedding digital payments into everyday state-citizen interactions, the Government is gradually building a more shock-resistant revenue ecosystem.

In the context of recurring climate shocks, GovPay may not fund reconstruction—but it strengthens the fiscal plumbing that keeps the State functioning under pressure. Its real test will be whether digital efficiency translates into measurable budgetary discipline when the next disaster strikes.

Cyclone Ditwah may be remembered as one of Sri Lanka’s worst natural disasters in decades, but its geopolitical aftershocks could prove just as significant. India’s rapid and large-scale humanitarian response has not only shaped the country’s immediate recovery but has also underscored how disaster response is increasingly becoming a defining instrument of diplomacy in the Indian Ocean region.

When the cyclone struck on 27 November, Sri Lanka faced widespread flooding, landslides and the collapse of critical infrastructure. Within hours, India launched Operation Sagar Bandhu, mobilising naval, air and disaster-response assets at a speed unmatched by other international partners. The presence of Indian naval vessels in Colombo at the time of the disaster allowed relief supplies to be delivered almost immediately, while air force aircraft and helicopters sustained rescue and evacuation operations over several days.

Beyond the humanitarian imperative, the response highlighted India’s evolving role as a regional first responder. The scale of the operation demonstrated not just goodwill but operational readiness, combining military logistics with civilian disaster-management capabilities. Field hospitals, temporary bridges and specialised rescue teams filled critical gaps at a moment when Sri Lanka’s own capacity was severely stretched.

This approach aligns closely with India’s broader vision for the Indian Ocean as a zone of shared security and stability. As climate change increases the frequency and intensity of extreme weather events, disaster response is becoming a strategic asset. Countries that can act decisively in emergencies build trust, visibility and influence without the political sensitivities often associated with traditional power projection.

For Sri Lanka, the episode highlights both opportunity and responsibility. Reliable regional support can significantly reduce the human and economic costs of disasters. At the same time, Colombo must ensure that emergency cooperation does not evolve into long-term dependency. Strengthening domestic disaster preparedness, early-warning systems and climate-resilient infrastructure remains essential to preserving strategic autonomy.

India’s engagement so far has been largely framed around immediate relief and reconstruction support, with no overt political conditions attached. This has helped reinforce the perception of assistance driven by proximity and shared risk rather than transactional diplomacy. Yet it would be unrealistic to separate humanitarian action entirely from strategic context. Sri Lanka’s central location along major sea lanes ensures that stability on the island is a regional priority for India.

The lesson from Cyclone Ditwah is not that disaster diplomacy is inherently problematic, but that it reflects a changing regional reality. In the Indian Ocean, influence is increasingly measured by responsiveness, reliability and the ability to deliver public goods in times of crisis.

As Sri Lanka rebuilds, the challenge will be to convert this moment of solidarity into durable resilience strengthening partnerships while safeguarding national interests. For India, the operation marks a test case of how humanitarian leadership can shape regional diplomacy in an era defined as much by climate risk as by geopolitics.

The Disbursement of US$ 200 million in response to Sri Lanka’s   appeal for IMF emergency financing in the aftermath of Cyclone Ditwah  with the approval of  the IMF  executive board highlights a deeper policy dilemma: whether speed should trump cost in managing disaster recovery.

The Government insists that the Rapid Financing Instrument (RFI) is essential to ease immediate foreign exchange pressures. Yet economists caution that the country may be locking itself into an expensive solution when cheaper, less risky options remain available.

At the centre of the debate is the changing nature of IMF lending. Once considered a low-cost safety net, IMF credit has become significantly more expensive for heavily indebted countries. Factoring in SDR-linked interest rates, exchange rate depreciation, and time-based surcharges, analysts estimate that Sri Lanka’s RFI borrowing could carry double-digit costs in local currency terms.

This matters because Sri Lanka is still restructuring billions of dollars in external debt. Adding high-cost emergency loans even relatively small ones could complicate negotiations with creditors and weaken fiscal credibility. Critics argue that disaster financing should reduce long-term vulnerability, not quietly add to it.

Verité Research has pointed out that domestic markets may already be offering cheaper solutions. Sri Lankan banks attract US dollar deposits at around 5%, signalling investor confidence and unused capacity. A targeted domestic dollar bond for cyclone recovery could mobilise these funds transparently while keeping interest costs below IMF-adjusted rates.

Another underexplored avenue is concessional and grant-based financing. Global development banks and climate-focused funds routinely provide disaster assistance, especially to countries facing climate-related shocks. Sri Lanka’s vulnerability to extreme weather strengthens its case for grants rather than loans yet this route requires diplomatic coordination and strategic patience.

The Government argues that the RFI is justified under IMF rules and does not disrupt the ongoing reform programme. However, the timing has raised eyebrows. The emergency request comes just as a larger EFF disbursement has been delayed due to revised fiscal estimates linked to cyclone spending. Critics fear that reliance on IMF stopgap funding could mask deeper fiscal planning weaknesses.

Supporters counter that emergencies demand swift action and that IMF backing reassures markets. Still, economists warn that credibility built on costly borrowing is fragile. With recovery spending expected to roll out gradually, Sri Lanka arguably has time to design smarter financing structures that balance urgency with affordability.

Ultimately, the cyclone has exposed not only infrastructure weaknesses but also gaps in disaster financing strategy. Whether Sri Lanka emerges more resilient or more indebted will depend on choices made now, under pressure but with lasting consequences.

President and Finance Minister Anura Kumara Dissanayake on Wednesday dismissed claims that Sri Lanka’s economy would face a collapse in 2026 due to the Government’s decision to allocate an additional Rs. 500 billion for post-Cyclone Ditwah recovery, insisting that the country now has adequate fiscal space to absorb the spending without destabilising the economy.

Speaking at the conclusion of a special two-day Parliamentary debate on the supplementary estimate, the President said the warnings of economic distress overlooked the scale of fiscal consolidation achieved over the past 14 to 15 months. He stressed that the proposed spending would not increase public debt or breach borrowing limits approved by Parliament.

Dissanayake pointed to Sri Lanka’s strongest fiscal performance on record, noting that the Treasury had moved from chronic overdrafts to a sizeable surplus. Treasury overdrafts, which stood at Rs. 180 billion in 2017 and ballooned to over Rs. 821 billion by 2021, had been eliminated by November 2025, when the Treasury recorded a surplus of Rs. 1.2 trillion.

“These improvements have created the space to respond to emergencies like Ditwah,” he said, adding that such a response would not have been possible under the fiscal conditions inherited by the current administration.

The President highlighted several fiscal milestones achieved in 2025, including government revenue reaching 15.9% of GDP—the highest level since 2007 and the Budget deficit narrowing to 4.5% of GDP, the lowest since 1977. Revenue collections also exceeded annual targets for the first time in Sri Lanka’s history, reaching Rs. 5.12 trillion by early December, surpassing the Budget estimate of Rs. 4.96 trillion.

He further noted that the Government had refrained from increasing borrowing ceilings beyond what Parliament approved. Although the 2026 Budget provided for a borrowing limit of Rs. 3.8 trillion, this was reduced by Rs. 60 billion, and the supplementary estimate would be accommodated within that framework.

Sri Lanka also recorded a primary surplus of 3.8% of GDP in 2025 the highest ever breaking a long-standing pattern of weak fiscal discipline.

The President acknowledged that Cyclone Ditwah struck during a fragile recovery phase, causing widespread damage to livelihoods, infrastructure, and the environment. To fund the recovery, the Government has mobilised Rs. 700 billion, combining the supplementary estimate, redirected capital expenditure, and Treasury surpluses.

While recognising potential inflationary and balance-of-payments risks arising from the injection of funds, Dissanayake said spending would be carefully sequenced and supported by external financing, including a requested $200 million IMF Rapid Financing Instrument and additional multilateral support.

The Government Analyst’s Department says there is no confirmation that former Speaker and Member of Parliament Ashoka Ranwala had consumed alcohol at the time of the road accident involving him.

The department stated that tests conducted on his blood and urine samples did not establish evidence of alcohol consumption.

Sri Lanka’s Department of Meteorology has forecast limited rainfall in selected parts of the country today , with a few showers expected in the Uva Province as well as the districts of Ampara, Batticaloa, Matale, Nuwara Eliya and Hambantota.

Weather conditions across the rest of the island are expected to remain largely fair throughout the day.

The Met Department also warned of fairly strong winds, reaching speeds of around 40 kmph at times, particularly along the eastern slopes of the central highlands, in the North Western Province, and in the Ampara, Hambantota and Monaragala districts.

In addition, misty conditions are likely during the early morning hours in parts of the Western, Sabaragamuwa and Central provinces, along with the Galle and Matara districts, potentially reducing visibility in some areas.

Under the “Rata Ekaṭa” (Nation United) national operation aimed at eradicating illicit drugs from the country, more than 47,000 people have been arrested in islandwide raids linked to drug-related offences.

According to the Police Media Division, operations carried out from October 30 up to yesterday resulted in the arrest of 47,703 suspects across Sri Lanka.

During these raids, police seized large quantities of narcotics in the possession of the suspects, including 276 kg and 374 g of heroin, 1,002 kg and 923 g of crystal meth (ICE), 1,411 kg and 936 g of cannabis, along with hashish and other illicit drugs.

Authorities further stated that detention orders have been obtained for 1,081 suspects to facilitate extended investigations. Meanwhile, 1,130 individuals have been referred for rehabilitation, and investigations into illegal assets have been launched against 47 suspects.