From disaster to economic resilience

Tuesday, 23 December 2025 01:33 - - {{hitsCtrl.values.hits}}

Delaying or underfunding recovery would deepen output losses, prolong unemployment, and ultimately worsen fiscal deficits

“Together, Sri Lanka can rebuild stronger. This is not just about recovery but also about resilience, responsibility, and renewal. If we plan wisely, act transparently, and work as one nation, today’s challenge can become tomorrow’s strength. Sri Lanka can rise, stronger, safer, and more resilient than before.”

Sri Lanka’s recent natural disaster has evolved beyond a humanitarian emergency into a systemic economic shock, affecting households, businesses, infrastructure, public finances, and growth prospects simultaneously. With approximately 17,648 housing units identified as uninhabitable by the National Building Research Organisation (NBRO), large-scale displacement and livelihood disruption have placed significant pressure on the economy. While Sri Lanka’s nominal GDP stands at around $100 billion and the economy has shown a recovery growth trend of 4%–5% during 2024–2025, the disaster threatens to moderate short-term growth to around 3% unless recovery measures are implemented effectively.

The Government’s proposed Rs. 500 billion supplementary estimate represents a stabilisation investment, rather than discretionary spending, aimed at immediate humanitarian relief, economic reactivation, and resilient reconstruction. Drawing on international experience, in particular Japan’s ‘Build Back Better’ approach, Sri Lanka has an opportunity to transform this crisis into a structural reset by prioritising science-based planning, climate-resilient infrastructure, transparent fiscal management, and integrated livelihood recovery. Properly executed, the recovery program can safeguard growth, restore confidence, and strengthen long-term economic resilience.

Sri Lanka’s Rs. 500 billion recovery plan and the strategic case for “Build Back Better”

Natural disasters are often described as temporary humanitarian crises. However, for developing economies with limited fiscal space and fragile growth trajectories, disasters frequently evolve into long-lasting economic shocks. Sri Lanka’s recent natural disaster is a textbook example of how a climate-driven event can escalate into a systemic shock, simultaneously disrupting households, businesses, infrastructure, public finances, and future growth prospects.

The Government’s proposal of a Rs. 500 billion supplementary estimate must therefore be analysed not merely as emergency relief, but as a macro-economic stabilisation measure and a strategic recovery investment. The choices made now will determine whether Sri Lanka enters a cycle of repeated disaster losses or moves decisively toward a more resilient economic model.

Understanding the nature of the shock: Beyond a humanitarian crisis

Household shock: sudden loss of housing, assets, and income
Enterprise shock: interruption of production, trade, and services
Infrastructure shock: damage to transport, power, water, and irrigation systems
Fiscal shock: declining revenues alongside unplanned expenditure
Growth shock: slowdown in output, investment, and consumption

A systemic shock refers to an event that simultaneously disrupts multiple interlinked systems, triggering cascading failures that cannot be addressed through isolated, sector-specific interventions. In Sri Lanka’s case, the recent disaster generated a series of interconnected shocks—at the household level through the sudden loss of housing, assets, and income; at the enterprise level through the interruption of production, trade, and services; across infrastructure through damage to transport, power, water, and irrigation systems; and within public finances through declining revenues alongside unplanned expenditure. These disruptions collectively translated into a growth shock, slowing output, investment, and consumption at a time when economic recovery from previous crises remains fragile. As a result, the disaster’s impact extends well beyond immediate humanitarian concerns, undermining economic momentum and highlighting the need for a coordinated, system-wide recovery response.

Disruptions collectively translated into a growth shock, slowing output, investment, and consumption at a time when economic recovery from previous crises remains fragile. As a result, the disaster’s impact extends well beyond immediate humanitarian concerns, undermining economic momentum and highlighting the need for a coordinated, system-wide recovery response

Human and social impact: The foundation of economic stability

The most immediate impact of the disaster was human. Thousands of families were displaced, either due to direct destruction of homes or because dwellings were declared unsafe. Children’s education was interrupted, access to healthcare became constrained, and vulnerable groups, including the elderly, persons with disabilities, and daily wage earners, faced heightened insecurity.

From an economic standpoint, social stability is not separate from growth. Housing insecurity and income loss reduce labour productivity, discourage workforce participation, and increase long-term dependence on State support. The longer displacement continues, the greater the risk of entrenched poverty and social fragmentation.

Evidence-based housing decisions: The NBRO’s critical role

The National Building Research Organisation (NBRO) has introduced a crucial element often missing in post-disaster recovery which is science-based decision-making.

NBRO assessments identified:

6,228 houses as completely destroyed
4,543 houses as partially damaged and unsafe
6,877 houses as physically intact but geologically unsafe

This brings the total number of uninhabitable homes to 17,648.

International experience shows that ignoring geological risk assessments is fiscally reckless.

Rebuilding in unsafe zones leads to:

Recurrent loss of public investment
Escalating insurance and compensation costs
Preventable loss of life

Countries such as Japan and New Zealand have demonstrated that relocation, though politically difficult, significantly reduces long-term disaster costs.

Livelihood disruption and MSMEs: The economic backbone under stress

The disaster’s economic impact was most severe at the livelihood and enterprise level. Agriculture, fisheries, tourism, transport, and construction were directly affected. Particularly vulnerable were Micro, Small and Medium Enterprises (MSMEs), which account for a substantial share of employment and regional economic activity in Sri Lanka.

MSMEs typically operate with:

Limited cash reserves
High dependence on daily turnover
Minimal insurance coverage

As a result, even short disruptions can lead to permanent closures. Cash-flow interruptions force households into debt, weaken consumer demand, and reduce tax collections, further amplifying fiscal pressure.

Macroeconomic implications: GDP, growth and fiscal pressure

Sri Lanka’s nominal GDP is currently estimated at approximately USD 100 billion, with real growth of around 4%–5% during 2024–2025, reflecting a gradual recovery from the 2022–2023 economic crisis.

Natural disasters however exert downward pressure on short-term GDP growth through:

Reduced agricultural and industrial output
Lower household consumption
Deferred private investment
Disruptions to tourism and services

As a result, growth in the current year may moderate toward around 3%, unless recovery spending is timely and effective.

At the same time, reconstruction expenditure can provide a counter-cyclical boost if properly managed by supporting employment, domestic demand, and supplier industries. The long-term GDP outcome will depend on the quality of rebuilding, not merely the volume of spending.

For developing economies with limited fiscal space and fragile growth trajectories, disasters frequently evolve into long-lasting economic shocks. The Government’s proposal of a Rs. 500 billion supplementary estimate must be analysed not merely as emergency relief, but as a macro-economic stabilisation measure and a strategic recovery investment

The Rs. 500 billion supplementary estimate: A stabilisation imperative

From a public finance perspective, the Rs. 500 billion supplementary estimate addresses a structural mismatch. The annual budget is designed for normal conditions, not systemic shocks.

The allocation targets three overlapping priorities:

1. Immediate humanitarian relief

2. Economic and livelihood reactivation

3. Reconstruction of housing and critical infrastructure

Delaying or underfunding recovery would deepen output losses, prolong unemployment, and ultimately worsen fiscal deficits. In this context, the supplementary estimate functions as a stabilisation investment, aimed at preventing a deeper and more prolonged economic downturn.

Targeted social protection: Temporary support with long-term intent

The decision to provide Rs. 50,000 per month for three months to affected households reflects a targeted and time-bound approach to social protection.

This assistance:

Prevents immediate descent into poverty
Supports consumption during displacement
Buys time for permanent housing and livelihood solutions

Crucially, the fixed duration and eligibility criteria ensure that support complements, rather than replaces, economic recovery and self-reliance.

Global lessons: How other countries rebuild smarter

Japan

Japan’s post-disaster recoveries emphasise strict zoning, resilient construction standards, and long-term planning. Reconstruction is slower initially but significantly reduces future losses.

The Netherlands

Facing chronic flood risk, the Netherlands invests heavily in prevention with integrated water management, adaptive land use, and resilient infrastructure thereby treating disaster resilience as economic policy.

New Zealand

Following major earthquakes, New Zealand combined transparent funding mechanisms, community engagement, and long-term urban redesign, restoring investor confidence and economic stability.

The common thread, that resilience is cheaper than repeated reconstruction, is clear.

What “Build Back Better” means for Sri Lanka

For Sri Lanka, “Build Back Better” must translate into:

Binding use of NBRO risk assessments
Climate-resilient infrastructure standards
Integrated housing and livelihood planning
Transparent fund management and audit trails
Alignment of disaster recovery with national development goals

Rebuilding yesterday’s vulnerabilities would merely postpone the next crisis.

Conclusion: A national reset opportunity

Sri Lanka is at a defining moment. This disaster must be viewed not merely as an emergency to be managed, but as a decisive test of national resolve, institutional strength, and economic leadership. If executed with transparency, technical discipline, and a people-centred approach, the Rs. 500 billion recovery program can do far more than repair damage. It can re-anchor economic stability, shield vulnerable households, restore investor confidence, and reposition the country on a path toward resilient and inclusive growth. International experience leaves little room for doubt. Disasters themselves may be inevitable, but prolonged economic decline is a choice. With the right policies and decisive execution, Sri Lanka has a rare opportunity to convert crisis into reform and rebuild not just what was lost, but what is required for a stronger future.

(The author is a chartered accountant.)

From disaster to economic resilience

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