Sri Lanka forecasts 5% growth in 2026, aided by post-cyclone reconstruction

COLOMBO: Sri Lanka expects its economy to expand by more than 5% next year, matching this year’s pace and significantly outstripping IMF projections, partly driven by reconstruction efforts following Cyclone Ditwah, a senior minister told Reuters on Wednesday.

The storm hit in late November, killing nearly 650 people and affecting about 10% of Sri Lanka’s 22 million population. It caused major damage to infrastructure, farms, and tea estates, with rebuilding costs estimated at up to $7 billion in a country still recovering from economic collapse in 2022.

The Indian Ocean island has been receiving funds under an IMF bailout programme, while additional emergency assistance has been pledged by global agencies and foreign governments for it to cope with its worst natural disaster since the 2004 tsunami.

FUNDING COMING IN

This month, the Asian Development Bank committed $200 million for the country and the World Bank $120 million. The IMF is expected to approve Sri Lanka’s request for emergency funding of $200 million on Friday, said Anil Jayantha Fernando, the country’s deputy minister of finance and planning.

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“So with the quick response, support from agencies and the existing development programmes, I don’t think that (growth) would be really hampered,” he told Reuters.

“Rather, it would increase; maybe new investments come for reconstruction, the repair of these infrastructures and all those things. In a way, even from a technical perspective, it will not slow down, it will further go up.”

He said growth this year would be more than 5%, higher than the central bank’s 4.5% projection, based on numbers in the first three quarters of the year. He expects similar growth next year too. The IMF has predicted 3.5% in 2025 and 3.1% next year.

To repair damaged homes, restore infrastructure such as roads and railways, and rebuild livelihoods, Fernando said the government would divert funds from other areas, utilise tax revenue and seek more international support.

‘SINOPEC DEAL ALMOST FINALISED’

He said parliament is expected to approve 500 billion rupees ($1.6 billion) in supplementary spending, funded partly through the reallocation of ministry budgets, when it convenes on Friday and Saturday.

Additionally, 1.4 trillion rupees ($4.6 billion) have been earmarked for capital expenditure in 2026, partly to support post-cyclone reconstruction efforts.

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The government also plans to host a donor conference in mid-January to secure further funding, as damage assessments from the cyclone continue.

Foreign investment will play a key role in the recovery, he said.

Colombo is set to finalise an agreement with Chinese state energy giant Sinopec for a $3.4 billion refinery in the next two months and introduce legislation to spur investment linked to a $1.4 billion China-backed Port City project off the Colombo coast, Fernando said.

“With regard to Sinopec, almost that is finalised,” he said. “So we hope we would be able to sign this agreement and commence this project either at the end of this month or maybe early next year.”

Sinopec did not immediately respond to an email seeking comment.

The planned refinery, approved in 2023, will have the capacity to process 200,000 barrels of crude oil per day and will be located near the Chinese-built and operated Hambantota port in southern Sri Lanka. It faced delays mainly over the company’s long-standing demand to sell more fuel locally, a condition the energy minister has said the government is considering.