Government Defends Rs. 500 Billion Post-Ditwah Spending Plan

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.