Sri Lanka is grappling with a mounting economic and humanitarian strain as the fallout from the Iran war compounds the damage caused by last year’s devastating floods, raising fears of renewed instability in the island nation.
In Kudugalhena village in the central Kandy district, Indrani Ravichandran and her family have returned to a partially damaged home, inhabiting the only section left standing after Cyclone Ditwah struck in November.
The storm brought unprecedented rainfall, with up to 500mm recorded in parts of the central highlands over three days, triggering floods and landslides that destroyed homes, businesses, and entire settlements, says the BBC.
The disaster claimed 643 lives, while 173 people were reported missing. Survivors recounted fleeing in darkness as floodwaters surged, leaving little time to save belongings.
For many, the destruction has eclipsed even the memory of the 2004 Indian Ocean tsunami in terms of infrastructure damage.
Economists warn the country now faces a “triple shock” – the aftermath of the floods, surging global fuel prices linked to the Iran conflict, and the threat of drought in some regions. The combined pressures have pushed an already fragile economy closer to crisis.
In recent weeks, authorities have rationed fuel, raised prices, introduced a four-day working week, and increased electricity tariffs by as much as 40 per cent. Water and power cuts have also been imposed as resources tighten.
Shortages of fuel and cooking gas have triggered panic buying, recalling the 2022 financial collapse when Sri Lanka defaulted on its foreign debt and ran out of foreign currency. That crisis led to widespread shortages of essentials, prolonged power outages, and mass protests that forced then President Gotabaya Rajapaksa from office.
Although the government has since implemented reforms, including cutting subsidies and raising income tax rates to as much as 36 per cent, the recovery has been uneven.
The World Bank estimates Cyclone Ditwah affected nearly two million people and 500,000 families across all 25 districts, disrupting livelihoods and essential services.
Total damages are estimated at around $4 billion, equivalent to roughly 4 per cent of gross domestic product. President Anura Kumara Dissanayake described the cyclone as the country’s worst-ever economic disaster and announced financial assistance for affected families.
Households with partial damage have received about 50,000 rupees to carry out repairs, while compensation of up to five million rupees has been pledged for destroyed homes. Families of those killed have been promised around one million rupees.
Despite these measures, more than 165,000 people remain displaced months after the cyclone, relying on relatives or temporary shelters while awaiting permanent housing and support.
Funding constraints continue to hamper recovery efforts. The government has secured only about $750 million – roughly one-fifth of the required reconstruction funds. International assistance has been limited compared with the global response to the 2004 tsunami.
India emerged as the primary contributor, launching a relief mission that deployed naval vessels, air force helicopters, and medical teams, and delivering more than 1,000 tonnes of supplies alongside $450 million in aid. China, by contrast, provided less than $2 million in assistance and about 100 tonnes of supplies.
The government has since requested Beijing’s support to rebuild key infrastructure damaged by the cyclone. Officials acknowledge delays in compensating those who lost homes or businesses but say efforts are under way to identify safer land for reconstruction and to ensure resilience against future disasters.
Authorities say more than 80 per cent of affected residents have received financial assistance for repairs, though critics argue progress remains slow.
Sri Lanka’s foreign reserves stand at about $7 billion, which economists say may be sufficient to manage the immediate fallout. However, they warn that prolonged disruption from the Middle East conflict could intensify pressure.
The government is also concerned about potential declines in remittances, which brought in around $7 billion last year, largely from workers in Gulf countries. While layoffs have not yet materialised, uncertainty over future employment remains a risk.
As the country balances reconstruction demands with external economic shocks, analysts say the response to the crisis could become a defining test of President Dissanayake’s leadership.
