Budget 2026: LKR 500 Bn Supplementary Allocation for Cyclone Ditwah Recovery Narrows Fiscal Space

Abstract

On 19 December 2025, the Sri Lankan Parliament approved a supplementary allocation of LKR 500 billion (approximately USD 1.6 billion) to fund recovery efforts following the devastation caused by Cyclone Ditwah. However, this additional spending also lifts the budget deficit expected for 2026 to 6.5% of GDP, squeezing fiscal space. This study sets out non-debt options such as grant mobilisation and targeted revenue measures.