Sri Lanka Forecasts Over 5% Growth in 2026 After Cyclone Reconstruction

Sri Lanka expects its economy to expand by more than 5 percent in 2026, supported by reconstruction efforts following Cyclone Ditwah, a senior government minister said on Wednesday. 

The cyclone, which struck in late November, killed nearly 650 people and affected around 10 percent of the country’s 22 million population. It caused extensive damage to infrastructure, agriculture, and tea estates, with rebuilding costs estimated at up to $7 billion, as the country continues to recover from its 2022 economic crisis.

Sri Lanka is receiving assistance under an IMF-supported programme, along with emergency funding pledged by international agencies and foreign governments. The Asian Development Bank committed $200 million, the World Bank approved $120 million, and the IMF is expected to approve an additional $200 million. Deputy Minister of Finance and Planning Dr. Anil Jayantha Fernando said that reconstruction activity and institutional support are expected to boost growth, with new investments likely to flow into rebuilding damaged infrastructure.

Economic growth this year is expected to exceed 5 percent, above the central bank’s 4.5 percent forecast, based on performance in the first three quarters, and similar growth is anticipated next year, compared with IMF projections of 3.5 percent in 2025 and 3.1 percent in 2026. 

To finance reconstruction of homes, roads, railways, and livelihoods, the government plans to reallocate funds, use tax revenue, and seek additional international assistance. Parliament is expected to approve 500 billion rupees ($1.6 billion) in supplementary spending, while 1.4 trillion rupees ($4.6 billion) has been earmarked for capital expenditure in 2026. A donor conference is also planned for mid-January.

Foreign investment is expected to play a key role in the recovery. Sri Lanka is close to finalising a $3.4 billion agreement with Chinese state-owned energy company Sinopec for an oil refinery near the Hambantota port. The project, approved in 2023, will have the capacity to process 200,000 barrels of crude oil per day, with construction expected to begin by late 2025 or early 2026. Sinopec did not immediately respond to a request for comment.