Growth that lasts, not just rebuilds
View(s):I am not sure whether to weep or chuckle. At a meeting with Dr. Dirk Willem te Velde and Dr. Ganeshan Wignaraja of ODI Global, I remarked: “We can multiply this further—by making life harder for our people in the years ahead.” They visited me at the Centre for Poverty Analysis (CEPA) on Monday.
The surge has been credited to government policies that encourage sending “skilled workers” abroad—many of whom might otherwise be under-employed or idle at home without productive opportunities to contribute to growth in their home country. In 2024 alone, more than 310,000 Sri Lankans left for foreign employment, a figure that exceeds the annual growth of the domestic labour force.
Communities were devastated by the recent cyclone. Pic courtesy FAO.
Few countries run a dedicated government agency to promote foreign employment. Sri Lanka is one of them among a few such countries in South and Southeast Asia.
Reports highlight that rising remittances have boosted foreign reserves and provided relief to the economy. Yet, in the absence of credible export-led economic growth, Sri Lanka remains dependent on such makeshift sources of foreign exchange.
Ditwah impact
Increased remittances, higher tourist earnings, and now post-Ditwah foreign aid has cushioned Sri Lanka’s short-term foreign exchange needs. Yet these temporary remedies do little to reduce the country’s vulnerability to external shocks—as seen during the COVID pandemic in 2019 and again with the Ditwah cyclone in 2025.
While direct assessments of Ditwah’s impact can be made, measuring how far it has pushed the economy back from its potential path is far more difficult. Beyond the deaths and humanitarian crisis, the cyclone devastated livelihoods, housing, infrastructure, and essential services nationwide.
How much the economy has fallen, and how many years recovery will take, remain open questions. What is clear is that Sri Lanka’s economy still lags behind the level it enjoyed seven years ago in 2018. Even before full recovery was possible, the Ditwah cyclone dragged it further backward.
Rapid assessment
Two rapid assessments of Cyclone Ditwah’s economic impact in Sri Lanka were carried out independently by the World Bank and the International Labour Organization (ILO).
The World Bank (2025) estimated $4.1 billion in direct physical damage, equal to about 4 per cent of GDP. This figure covers destruction to buildings, agriculture, and critical infrastructure. The cyclone also affected 2 million people across all 25 districts, severely disrupting livelihoods. Yet this estimate excludes income losses, business interruptions, and full recovery costs—meaning the actual recovery needs will be far higher.
Sectoral damage was severe. Housing and buildings were destroyed, leaving families displaced and communities shattered. Agriculture—the backbone of rural livelihoods—suffered immense losses: crops ruined, farmland inundated, and livestock wiped out, threatening food security and incomes.
Critical infrastructure collapsed as well. Roads and bridges were broken, transport networks paralysed, power lines downed, and water systems fractured. Together, these impacts crippled economic activity and highlighted the urgent need for resilient, sustainable recovery and reconstruction.
ILO assessment
The ILO’s Preliminary Employment Impact Assessment (2025) highlights the scale of disruption caused by Cyclone Ditwah, estimating losses equivalent to 16 per cent of Sri Lanka’s GDP—around $16 billion. The labour market impact is stark: 374,000 workers were directly affected, many in informal and low-wage jobs.
Without strong social protection, these groups face immediate income insecurity. Household earnings in affected areas are under severe strain, with the ILO projecting potential monthly income losses of $48 million. This underscores the urgency of income-stabilising measures such as cash transfers and wage subsidies to prevent deeper poverty.
The cyclone’s effects were uneven across regions. Northern and eastern districts endured the worst flooding, while landslides devastated central tea-growing areas—threatening one of Sri Lanka’s key export sectors. This dual blow to subsistence farming and export-oriented agriculture reveals the deeply interconnected nature of the disaster’s economic fallout.
The difference
The apparent gap between the World Bank’s 4 per cent of GDP estimate and the ILO’s 16 per cent of GDP figure can be confusing if not carefully understood. These numbers do not measure the same thing, and they do not contradict each other.
The World Bank focuses on physical destruction—houses, buildings, roads, bridges, farmland, energy systems and other infrastructure. In short, it calculates the direct cost of what was broken. This narrower lens produces a lower figure, but it provides a critical baseline for reconstruction planning.
The ILO, by contrast, looks at economic risk and livelihoods. Using satellite data and labour force surveys, it estimates how many workers were affected, how much income was disrupted, and how this translates into GDP exposure. Its broader measure—16 per cent of GDP—captures not only damaged assets but also the ongoing risks to production, wages, and consumption if recovery falters.
Seen together, the two figures are complementary rather than contradictory. The World Bank figure tells us the cost of rebuilding what was lost. The ILO figure warns us of the income and employment risks if households and firms cannot bounce back quickly.
Put simply, World Bank measures the “bricks and mortar” while the ILO measures the “bread and butter”. This distinction is vital for policymakers, because recovery must address both the reconstruction of infrastructure and the stabilisation of livelihoods.
Growth from recovery
Although the IMF and World Bank have not yet revised their growth forecast of around 3 per cent for Sri Lanka, the Central Bank projects 4–5 per cent, while the government’s 2026 Budget—before the cyclone—had ambitiously targeted 7 per cent medium-term growth.
There is no question that after three painful years (2023–2025) of hard-won economic stability, Sri Lanka must now focus on sustaining transformative growth. Stability must be consolidated; millions of the poor who fell from the pan to fire must be lifted through opportunities for work and income; and heavy debt service obligations must be met with a lighter debt burden.
Yet Cyclone Ditwah has already erased much of the economy’s potential contribution to growth. The World Bank estimates $4.1 billion in direct physical damage—about 4 per cent of GDP—from destroyed housing, farmland, and infrastructure. The ILO’s assessment goes further, projecting losses equivalent to 16 per cent of GDP—around $16 billion—once employment disruption and income insecurity are factored in. Together, these figures show that the cyclone has not only broken assets but also shaken livelihoods, dragging growth backward.
New growth
In the coming years, recovery and reconstruction will inevitably drive part of Sri Lanka’s GDP growth. But this is not “new” growth—it is rebuilding what was lost as in World Bank’s estimate. Just as post-war growth in 2010–2012 was fuelled by reconstruction and quickly faded, post-Ditwah growth risks being a temporary rebound rather than a sustained trajectory.
Recovery and reconstruction of these assets are part of the economic activities that Sri Lanka must undertake – and these activities would constitute part of post-Ditwah economic growth, capturing what ILO has estimated. This is also not new growth, but restoring what was lost.
This means, though the country is able to achieve a moderately higher economic growth, we should know that a significant portion of that growth is due to recovery and reconstruction – nothing new. It would be similar to post-war high growth during 2010-2012 that came from construction and reconstruction but faded away thereafter.
The country’s need for sustaining a higher growth momentum is even more critical today than it was prior to the Cyclone Ditwah. The big question for the government is, how to face this challenge of sustaining a higher growth momentum above and beyond recovery and reconstruction activities.
(The writer is Emeritus Professor at the University of Colombo and Executive Director of the Centre for Poverty Analysis (CEPA) and can be reached at sirimal@econ.cmb.ac.lk and follow on Twitter @SirimalAshoka).
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