- COPF Chair warns of structural flaws, transparency failures; cites need for transparent, investment-led strategy
- Govt. concerned about fiscal management of 2027/’28, dollar reserves
The Government has unveiled a four-year, Rs. 1 trillion post-Cyclone Ditwah recovery and reconstruction programme, which has triggered a national debate.
There are two sharply contrasting positions at the centre of the debate. On the one hand, the Government has emphasised that the programme is fully funded, phased, and buffered by exceptional fiscal conditions created by Sri Lanka’s foreign debt standstill. Treasury Deputy Secretary Ananda Kithsiri Seneviratne argues the Government’s stance with a number-driven defence of the proposed recovery framework.
On the other hand, Samagi Jana Balawegaya (SJB) Member of Parliament (MP) and Committee on Public Finance (COPF) Chairman Dr. Harsha de Silva has warned that the recovery effort risks deepening Sri Lanka’s economic vulnerabilities due to the absence of transparency, the lack of a legal framework, and policy decisions that he says are actively discouraging private investment at a time when it is most needed.
Commenting on the debate, former Deputy Governor of the Central Bank of Sri Lanka (CBSL) Dr. W.A. Wijewardena argued that there was no imminent danger of collapse, but cautioned that the current fiscal comfort was temporary and that execution failures could leave the country exposed once debt repayments resumed.
Meanwhile, National Disaster Relief Services Centre (NDRSC) Spokesperson and Assistant Secretary Jayatisi Munasinghe emphasised the human dimension of recovery, calling for unity, efficient use of funds, and public cooperation to restore livelihoods and productivity.
A phased Rs. 1 t recovery prog.
According to Seneviratne, the post-Cyclone Ditwah recovery programme is structured as a four-year intervention running from 2025 to 2028, with total expenditure amounting to Rs. 1 trillion. Seneviratne insisted that the programme was neither ad hoc nor fiscally reckless, but a carefully sequenced programme to match implementation capacity and revenue conditions.
“First, we must recognise that rapid damage assessments, including those done by international agencies, are not always fully accurate. Based on our own assessments, the Government has designed a four-year reconstruction and livelihood support programme from 2025 to 2028 with a total estimated cost of Rs. 1 trillion. This is not a one-year exercise, and it cannot be treated as such,” said Seneviratne.
“In 2025, immediately after the cyclone, we spent between Rs. 20 billion and Rs. 30 billion on emergency relief, temporary shelter, and urgent livelihood support. The major allocation comes in 2026. Parliament has approved a supplementary allocation of Rs. 500 billion specifically for disaster reconstruction activity. In addition to that, Rs. 100 billion has been repurposed from the originally approved 2026 Budget for disaster-related activities. That means the total allocation for disaster recovery in 2026 alone is Rs. 600 billion,” he added.
The Treasury Deputy Secretary said that this figure was central to understanding the Government’s approach. “When people talk about a funding gap, they often ignore the fact that Rs. 600 billion has already been allocated for 2026. That is more than half of the entire four-year programme concentrated in a single year.”
He said that the remaining balance of Rs. 400 billion would be allocated across 2027 and 2028. “The remaining expenditure will be spread over 2027 and 2028. This allows us to manage fiscal pressures and also reflects the reality that certain components, particularly housing relocation and reconstruction, simply cannot be completed within one calendar year.”
Seneviratne added: “Roughly Rs. 400 billion [of the total programme] is for livelihood-related assistance, including cash transfers and compensation payments to affected farmers and households. The larger portion, around Rs. 600 billion, is for relocation, reconstruction, and physical rebuilding, including housing, public buildings, roads, and other infrastructure. Of this, we estimate Rs. 200 billion will be spent on building reconstruction.”
Revenue performance and primary surplus
Addressing concerns that such large allocations could destabilise public finances, Seneviratne pointed to Sri Lanka’s revenue performance in 2025.
“Last year, our revenue collection was very strong. We estimate that revenue reached about 70% of the targeted share of Gross Domestic Product (GDP), amounting to roughly Rs. 5.4 trillion. This is an estimate because the accurate figures will only be finalised in the first week of February. More importantly, the primary balance surplus was around Rs. 1.6 trillion, which is significantly higher than the International Monetary Fund (IMF) target of Rs. 750 billion. The strong performance is a result of Government revenue from vehicle sales,” he stated.
He argued that this surplus provided the fiscal buffer needed to accommodate the spike in expenditure in 2026. “Because of this performance, we have space to manage the increase in expenditure in 2026. The only year where there is a significant increase in spending is 2026, and we can manage that with the revenue performance of 2025.”
However, Seneviratne acknowledged that the years beyond 2026 would require discipline, noting: “The challenge lies in 2027 and 2028. For those years, all expenditure, including disaster recovery spending, must be managed within a disciplined fiscal framework. Our objective is to keep Government expenditure at or below 13% of GDP. That means careful prioritisation and timely execution.”
Liquidity is not the issue – dollars are?
Responding to warnings of economic collapse, Seneviratne rejected the notion that the recovery programme posed an immediate macroeconomic threat. “No, there is no imminent risk of collapse. The issue is not rupee liquidity. We do not have a shortage of rupees. The potential constraint is foreign exchange, particularly dollars.”
He explained that reconstruction would inevitably increase demand for imported materials. “As reconstruction accelerates, there will be increased demand for imported construction materials, machinery, and equipment. That creates pressure on foreign exchange, not on domestic liquidity.”
To address this, he claimed the Government was actively engaging external partners. “India has pledged financial assistance, and we are in active discussions with the IMF, World Bank, and Asian Development Bank for rapid financing facilities. These discussions are specifically aimed at ensuring that foreign exchange requirements for reconstruction do not create balance-of-payments stress.”
He warned that the biggest operational risk was not funding availability, but delays in spending. “The real challenge is execution. If the Rs. 600 billion allocated for 2026 is not utilised efficiently within this year and gets pushed into 2027 or 2028, that will create significant budgetary pressure in those years. Our main duty is to ensure that rehabilitation activities are expedited now.”
Transparency and legal framework
In sharp contrast, COPF Chairman Dr. de Silva argued that the Government’s recovery programme was fundamentally flawed, not because of the headline numbers but because of the absence of transparency, legal clarity, and investor-friendly policies.
“My primary issue is a profound lack of transparency,” Dr. de Silva said. “I have written to everyone, including the President, insisting that the Auditor General must audit all funds involved in post-cyclone recovery. Despite the Government launching what it calls the Rebuilding Sri Lanka programme with much fanfare, there is no legal framework and there is no dedicated Rebuilding Sri Lanka Fund.”
He questioned where recovery funds were actually being channelled. “Where is this fund? Nothing is being collected into it. There is no single, clearly defined account that the public can see and say this is where the money is coming in and this is how it is being spent.”
Dr. de Silva also challenged the Government’s claims regarding external assistance. “As far as I am aware, apart from a commitment of around $ 100 million from India, only about $ 35 million in total aid has been accounted for. There is talk of a donor conference, but there is no real movement. In any case, donor conferences are outdated. What we need now is an investor conference.”
According to him, attracting investors requires clear and consistent policy signals. “To attract investors, you must ensure that they are welcome and that the policy environment is stable. But look at what is happening. In the power sector, the Electricity Reform Act has been reversed and the new policy direction creates uncertainty. What investor will commit significant money to transmission and distribution under those conditions?”
The MP extended this criticism to ports and airports. “The Government’s new thinking shows no real intent to liberalise ports or airports. These are precisely the sectors where private infrastructure investment could have played a major role in rebuilding. Instead, those avenues are being closed.”
Dr. de Silva warned that the contradiction between closing off private investment and scrambling for rebuilding funds was dangerous. “While all avenues for private sector infrastructure investment are closing, the Government is desperately looking for rebuilding funds. If money originally allocated for other development projects is diverted to rebuilding, then what happens to those other projects?”
He described this dynamic as economically futile. “You cannot close the door to investors and, at the same time, use the potential investment funds for rebuilding. You end up back at square one. This is what I call the broken window syndrome. You break a window and rebuild it, but at the end of the day, you are left with the same window, not additional ones.”
Borrowing costs and sustainability concerns
Dr. de Silva also raised concerns about reliance on borrowing, noting: “We are seeing State institutions like the Ceylon Electricity Board (CEB) trying to borrow relatively small amounts, for example $ 50 million from the Asian Infrastructure Investment Bank (AIIB), at interest rates close to 9.5%. We cannot borrow our way out of this crisis at those rates. This path is deeply problematic.”
In his view, the absence of a transparent, investment-led strategy risks leaving Sri Lanka with rebuilt but stagnant infrastructure. “We are rebuilding broken infrastructure, but there is no money for new infrastructure. That is not sustainable and it does not create growth.”
Warnings of future pressure
Former Deputy Governor of the CBSL Dr. Wijewardena broadly agreed that there was no immediate risk of collapse, but framed the issue as one of deferred fiscal pressure rather than permanent safety.
“No, not at all,” he said, when asked whether the increased deficit could trigger collapse. “The Government is in a fortunate position because foreign debt repayments have been suspended for nearly three years. This has allowed the Treasury to accumulate a cash surplus of about Rs. 1.3 trillion, which is currently held at the Bank of Ceylon.”
He explained how the recovery programme was being financed. “The entire Rs. 500 billion allocated for the recovery programme is being drawn from this surplus. As a result, the surplus will decline from around Rs. 1.3 trillion to roughly Rs. 800 billion. Technically, the budget deficit figure increases, but in reality, this does not strain Government finances because no new taxes or borrowing are required.”
However, Dr. Wijewardena cautioned against complacency. “This cushion exists only because we postponed debt repayments. When the Government resumes foreign debt repayments in 2027 and beyond, that surplus can very quickly turn into a deficit. That is when a fiscal problem will emerge.”
He also echoed concerns about execution, noting: “This allocation was made in the 2025 Budget, and the funds were transferred to spending ministries by the end of December 2025. The money is with them. The problem is that, so far, we have not seen concrete, well-prepared plans from these spending units. If the money is not used productively in 2026, the recovery programme will suffer.”
Human dimension and unity
From the disaster management perspective, NDRSC Assistant Secretary Munasinghe urged the public to look beyond deficit ratios.
However, he expressed confidence in the Government’s intentions. “I have confidence in the Government’s planning. This administration has shown a commitment to minimising corruption and using funds efficiently. We have also received significant support from international organisations and the United Nations.”
Munasinghe stressed that recovery was fundamentally about people. “The core of this effort is investing in human resources, which are our most valuable asset. When people lose their homes, they cannot focus on work. By providing support for shelter and livelihoods, the Government allows affected citizens to stabilise their lives and return to productive work. That is how the economic mechanism is reactivated.”
He added: “This is not a one-year task. It is a phased process over two to four years. The immediate phase focuses on restoring normalcy by repairing temporary roads and bridges so that economic activity can resume. The medium- to long-term phase focuses on permanent solutions, including staggered support for housing reconstruction.”
Munasinghe called for unity and restraint. “This is a collective national task. It is not only the Government’s responsibility. NGOs, the private sector, and citizens all have a role. We must remember that this was a natural disaster. Blame is counterproductive. What matters now is unity and morale.”