Cyclone Ditwah exposes deep issues in Sri Lanka’s MSME sector
The Micro, Small, and Medium-sized Enterprise (MSME) sector contributing over 52 per cent of Sri Lanka’s GDP and accounting for nearly 75 per cent of the country’s entrepreneurial base has once again proven to be both the backbone and the most vulnerable pillar of the national economy.
Already weakened by years of economic crisis and prolonged exposure to high interest rates, the sector is now reeling from the devastating impact of recent Cyclone Ditwah and floods, which industry leaders say has caused damage even more severe than the 2004 tsunami.
Cleaning up an affected shop.
Recent data reveals that more than 60 per cent of MSMEs are now officially classified as Non-Performing Loan (NPL) holders, largely due to persistently high borrowing costs during the crisis years. Under these circumstances, Cyclone Ditwah struck a devastating blow.
When asked about the extent of damage to businesses affected by flooding in low-lying regions, Ceylon Federation of Micro, Small, and Medium-sized Enterprises (CFMSME) President Mahendra Perera stated, “Businesses in flood-affected low-lying areas have been severely affected”.
Initial assessments by a special support centre established under the Ministry of Industries indicate that at least 13,698 businesses have been affected. These are 5,639 micro enterprises, 4,636 small businesses, 2,986 medium-scale enterprises, and 437 large-scale enterprises.
Ongoing forced shutdowns for days and weeks have resulted in an unprecedented decrease in cash flow performances of the affected firms, pushing some already deep into debts to default status.
The crisis has been compounded by the fact that many MSMEs lack adequate insurance coverage and digital backups of business records, significantly increasing their losses.
According to CFMSME estimates, direct economic losses to MSMEs range between Rs. 50 billion and Rs. 85 billion, while the overall economic damage could reach Rs. 2.17 trillion. In dollar terms, long-term losses may range from US$200 million to over $9 billion.
A comprehensive impact report prepared by the CFMSME has already been submitted to the relevant authorities, calling for urgent action.
The Government has announced immediate relief measures, including Rs. 200,000 in financial assistance for all disaster-affected industries and compensation of up to Rs. 5 million for physical and building damage.
Nevertheless, industry leaders point out the speed and level of transparency required in the disbursement of funds as the key factors to ensure the success of these initiatives in reviving the ailing industry.
Apart from the immediate assistance, a number of policies were outlined by Mr. Perera to stabilise and redevelop MSMEs.
These include rapid grant disbursement, concessional low-interest recovery loans, extended loan moratoriums of up to 12 months, suspension of parate action, flexible debt restructuring, and access to new credit regardless of temporary adverse CRIB records.
Proposals also cover asset replacement, disaster-resilient rebuilding, subsidised insurance schemes, workforce wage support, supply chain restoration, and sector-specific assistance for manufacturing, agriculture, tourism, and export-oriented MSMEs.
At a structural level, business leaders are calling for the establishment of a dedicated MSME Disaster Recovery Task Force and the integration of climate resilience into national MSME policy, aligned with the Climate Finance Strategy 2025-2030. Without such reforms, Cyclone Ditwah may stand not only as a natural disaster, but as a warning of systemic economic fragility yet to be addressed.
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