Sri Lanka’s Cyclone Ditwah Recovery Meets IMF Limits as $206 Million Emergency Loan Arrives

The water line still stains the walls of the Rajapaksa family’s small concrete house, a brown ring running chest-high around the living room where their sofa used to be. Three weeks after Cyclone Ditwah sent the Kelani River over its banks on the outskirts of Colombo, they sleep on classroom floors at a nearby school, sharing toilets with dozens of other families and waiting for word on when they can go home — or whether they will have a home to return to.

As Sri Lankans like them queued for donated meals on Dec. 19, the International Monetary Fund’s Executive Board in Washington approved about $206 million in emergency financing for the country and quietly postponed a key review of its flagship bailout program.

The twin decisions highlight a difficult question for a nation still emerging from financial collapse: how to rebuild from a deadly climate-driven disaster while bound by the debt limits and austerity targets of an IMF program.

A cyclone’s toll—and a damage bill worth 4% of GDP

Cyclone Ditwah made landfall on Sri Lanka’s eastern coast on Nov. 28 and swept across the island, unleashing days of torrential rain that triggered widespread flooding and landslides. According to government figures and international agencies, at least 645 people were killed and about 1.4 million were affected across all 25 districts. Tens of thousands were forced into temporary shelters as waters rose in low-lying neighborhoods and hillsides gave way in the central highlands.

A rapid assessment by the World Bank put direct physical damage at about $4.1 billion, roughly 4% of Sri Lanka’s gross domestic product. The analysis estimated $1.735 billion in damage to infrastructure such as roads, bridges and water systems, $985 million to homes and contents, $814 million to agriculture and inland fisheries, and $562 million to public buildings and businesses.

Satellite imagery reviewed by the United Nations Development Programme suggested that one-fifth of the country’s land area — about 1.1 million hectares — was inundated at the height of the flooding, with 2.3 million people living in affected zones.

IMF approves rapid funds, delays a bailout review

The IMF described Ditwah as a “catastrophic cyclone” that had “claimed more than 600 lives and affected millions,” in a press release issued Dec. 19. The storm “has created urgent humanitarian and reconstruction needs, generating significant fiscal pressures and balance-of-payments needs,” the Fund said.

To help meet those needs, the Board approved an emergency disbursement of SDR 150.5 million (about $206 million) under the Rapid Financing Instrument, a facility designed for quick assistance with limited conditions in the face of sudden shocks such as natural disasters.

“The RFI support will help address urgent balance-of-payments and fiscal pressures arising from the catastrophic Cyclone Ditwah,” IMF Deputy Managing Director Kenji Okamura said. He noted that the funds would support humanitarian spending and early reconstruction while helping the authorities “safeguard macroeconomic stability.”

At the same meeting, however, the Board stopped short of completing the scheduled fifth review of Sri Lanka’s four-year Extended Fund Facility (EFF), a $3 billion program agreed in March 2023 to pull the country out of its worst economic crisis in decades. Instead, directors decided to defer the review, saying more time was needed to gauge the cyclone’s economic impact and adjust the program accordingly. An IMF mission is expected to return to Colombo in early 2026 to resume discussions.

“The fifth review has been deferred to allow staff and the authorities to fully assess the macroeconomic and fiscal implications of the cyclone and to consider how the EFF-supported program can best support recovery and reconstruction,” Okamura said.

A disaster collides with a hard-won stabilization

The decision underscores how closely Sri Lanka’s room to maneuver after the disaster is tied to its relationship with the Fund and external creditors.

Just three years ago, the country ran out of foreign currency to pay for fuel, food and medicine, sparking protests that toppled a president and led to an unprecedented default on its foreign debt. In March 2023, the IMF approved a 48-month EFF arrangement worth SDR 2.286 billion (about $3 billion) in exchange for a sweeping reform program aimed at restoring debt sustainability, rebuilding reserves, tightening governance and raising government revenue.

Since then, Sri Lanka has completed four program reviews, unlocking about SDR 1.27 billion (roughly $1.74 billion) in IMF disbursements by July 2025. Under the program, the government has pushed through sharp tax increases and higher prices for electricity and fuel, helping lift revenue and grants from 13.7% of GDP in 2024 to a projected 16% in 2025. The primary budget balance swung into surplus, reaching 2.2% of GDP in 2024 with a target of 3.4% in 2025.

The adjustment appeared to be stabilizing the economy. After contracting sharply in 2022, real GDP grew by 5% in 2024, according to IMF estimates, with growth of 4.2% projected for 2025 before slowing to 2.9% in 2026 as cyclone effects weighed on activity. Inflation, which had topped 50% at the height of the crisis, dropped to 0.9% year-on-year by May 2024 and was forecast to average slightly below zero in 2025, even as localized price spikes emerged after Ditwah disrupted food supplies.

Externally, a combination of import compression, recovering tourism and stronger remittances pushed the current account into surplus, and gross international reserves climbed to about $5.5 billion by April 2024.

In parallel, Colombo negotiated a complex restructuring of its external debt. An official creditor committee led by Paris Club members and other bilateral lenders agreed a memorandum of understanding in June 2024. By late 2024, holders of about $12.55 billion in international bonds had approved a restructuring plan that averted further default and prompted Fitch Ratings to upgrade Sri Lanka’s foreign-currency rating from “restricted default” to “CCC+.” Japan signed a separate deal to rework roughly $2.5 billion of Sri Lankan debt in March 2025, while arrangements with China and India were under discussion.

President Anura Kumara Dissanayake, elected in September 2024 on an anti-corruption and pro-welfare platform, embraced the IMF-backed path despite his left-leaning roots. Serving simultaneously as head of state, finance minister and defense minister, he pledged in a November 2025 budget speech that Sri Lanka was nearing completion of its debt restructuring and was on track to regain the economic output lost during the crisis.

Cyclone Ditwah has now become the first major test of that strategy.

Reconstruction needs vs. fiscal limits

The storm’s damage bill — equivalent to 4% of GDP — threatens to squeeze a budget already calibrated to deliver primary surpluses and bring public debt, which stood at about 106% of GDP in 2024, onto a downward path. The IMF acknowledged the pre-cyclone fiscal “overperformance” in its December statement, but stressed that Sri Lanka remained highly vulnerable and that GDP remained below pre-crisis levels.

For communities in the central highlands and along flooded rivers, the trade-offs are immediate. Many of the worst-hit areas are home to estate workers and small farmers who operate largely in the informal economy and lack insurance or savings. Aid groups report that women-headed households and older residents have struggled to relocate and access support, while the damage to schools and clinics has disrupted education and health services.

The government has deployed troops and police to assist in search-and-rescue and has opened hundreds of temporary shelters in public buildings. According to the military, more than 25,000 personnel were mobilized for relief operations. India sent aircraft loaded with relief supplies and search-and-rescue teams, and multilateral lenders have begun redirecting existing funds. The World Bank said it could quickly mobilize up to $120 million from ongoing projects to repair critical infrastructure and restore basic services.

Transparency requirements—and a pivotal 2026 review

The IMF has said emergency spending financed by the Rapid Financing Instrument will be subject to strict transparency rules.

“Emergency spending undertaken in response to the cyclone will be implemented in line with the Public Financial Management Act, with enhanced monitoring and public reporting,” Okamura said, referring to legislation that governs how Sri Lanka’s Treasury allocates and accounts for public funds.

Economists say the early-2026 IMF mission will be pivotal in determining how much fiscal space the government will have for reconstruction over the next two years and whether the agreed timetable for reducing debt remains realistic.

Tourism, a key source of foreign exchange, will be central to that calculation. The government estimates tourism receipts at about $3.2 billion in 2025 and is targeting 3 million visitors in 2026, up from a record 2.36 million in 2025, partly to finance recovery from Ditwah. Industry operators warn that damaged roads, rail lines and sites in the hill country and along popular rivers must be repaired quickly if the sector is to meet those targets.

A broader test for IMF-era climate recovery

The decisions taken in the coming months will reverberate beyond Sri Lanka. Climate-related disasters are hitting more often in countries already struggling with high debt and IMF programs, spurring debate about whether existing tools — such as the Rapid Financing Instrument, standard bailouts and conventional debt restructurings — provide enough cushion for rebuilding.

For now, families like the Rajapaksas watch the weather and the news, listening for flood warnings and updates on compensation schemes in equal measure. As they mop the classroom floor where their children sleep, the question hanging over them is the same one confronting officials in Colombo and Washington: in a climate-exposed, indebted country, who pays when the next storm comes?